Is providing insurance benefits for employees necessary? This article will share how including insurance to be part of the employee compensation package will help your business in many ways.
When offering insurance coverage to staff, identifying who will be covered and what they will be covered for is important.
What types of insurance can employers provide?
There are a number of insurance products that employers can provide to their employees, they are:
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Health insurance – covers hospital and medical bills of the employee
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Life insurance – provides lump sum benefits in case of premature death or diagnosis of terminal illness
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Total and permanent disability (TPD) insurance – provides financial support in case of permanent disability
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Trauma or Critical Illness insurance – pays a benefit when the employee suffers from severe illness
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Income protection insurance – pays up to 75% of pre-disability monthly income when the employee is relieved from work due to sickness or injury
Having a clear goal on which protection you want for your employees will you narrow down your options.
Why provide insurance to employees?
For most businesses, employees are the lifeline of the operation. Protecting them and their family’s financial stability in case of life uncertainties, even outside of work, can mean a lot to them.
If employees know that the employer is taking care of them, it can make them loyal to the company and motivated to perform at best. This can significantly increase business’ profitability and better operations.
Below are some of the reasons why you should consider offering insurance benefits to your employees:
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Attract and retain best talents: Generous compensation package is a major factor for an employee to stay.
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Improved operations: An insurance coverage adds to employee’s motivation to perform better at work. Having group insurance will motivate more your employees to achieve the goals of the business.
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Tax benefits: Premiums paid on the group insurance are tax deductible making the cost of insurance even lesser.
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Cashflow stability: Prolonged sick leaves by employees will no longer be shouldered by the business. If qualified, employees can claim income protection benefits from the group insurance.
Insurance is often costly and hard to access (due to health reasons), with group life insurance and income protection often offering a highly valued level of protection for staff.
In addition to the benefits being highly value by staff, providing a group income protection policy can provide a quasi form of extended sick leave to staff. This can provide staff with an added layer of protection to the legislated sick leave they are provided with.
How is insurance typically offered to employees?
Insurance is typically offered to employees through a group insurance plan. Group insurance plans are usually offered by employers to their employees at a reduced rate. This is because insurance companies generally offer group discounts to employers who purchase insurance for their employees.
Employers typically pay the premiums for group insurance plans, while others require employees to contribute to the cost of the premiums. Group insurance plans may be offered to all employees of a company, or to only certain groups of employees, such as those who work in hazardous occupations.
Group insurance plans can be provided through superannuation or directly through the business. There are important considerations for both structures, tax and otherwise, that need to be explored when receiving advice on this.
Who should be covered?
Group insurance plans often require that all permanent staff members be covered under the plan. This is often because group insurance plans do not require members to provide detailed health information and by mandating that all members be covered, it mitigates anti-selection risk for the insurer.
How much insurance should employees have?
Group insurance plans will typically provide members with a level of insurance that is tied to their income. For Life and Total and Permanent Disability insurance we often see employers providing a fixed multiple of 2-6x an employees income as a benefit. For income protection insurance, monthly benefits are often capped and the replacement ratio limited to anywhere from 70-100% of an employees salary.
The amount of insurance that employees should have will depend on their individual needs and circumstances. Employees should consider their own health and lifestyle when determining how much insurance they need. They should also consider the needs of their family, especially if they have dependents.
While offering group life insurance and income protection to employees is an incredibly compelling perk, it is crucial that, as an employer, you understand all of the options you have and have confidence that staff will be covered should they need it.
Need Help with Insurance for Employees?
Providing insurance to your employees is a major business decision. It requires extensive planning and expertise to match your business’ goals to the best insurance. At Curo Financial Services, we have decades of experience working with business owners to provide expert advice on group insurance. If you need help, you may send us an email at [email protected] or call us at 1 300 665 356.
General Advice Disclaimer
General advice warning: The advice provided is general advice only and in preparing it we did not take into account your investment objectives, financial situation or particular needs. Before making an investment decision on the basis of this advice, you should consider how appropriate the advice is to your particular investment needs, and objectives. You should also consider the relevant Product Disclosure Statement before making any decision relating to a financial product.
