Paul Avis makes the case for protecting individuals being best served through employer sponsored support
While the group risk market stagnates and is subject to churn, one area that advisers could be looking to support market growth is by reviewing organisational protection as a preferred route over personal protection. The benefits of group insurances should be fully weighed up before an adviser recommends personal coverages as the group market can be proven to provide more value.
The cost per person for group insurances can be much lower than personal insurance and cover for two directors on a personal basis could be enough to cover a further 10 staff under a group arrangement.
To keep administration as simple as possible, insurers aim to minimise the amount of medical underwriting required. Each group insurance product has an element of ‘free cover' or ‘non-selection' limit where an individual's benefits below this limit are not subject to medical underwriting.
Medical underwriting is only required for benefits that exceed the free cover limit or for those individuals who do not qualify for the free cover limit. Where medical underwriting is required, insurers aim to simplify this process for both themselves and the client. Once someone is medically underwritten, forward underwriting is usually available, so that the level of cover can increase as salaries increase in the future without the need for further medical underwriting.
Some insurers now make life even easier by undertaking ‘once and done' underwriting, with the aim of only needing medical underwriting once.
Only group critical illness cover has pre-existing conditions clauses and so, as long as the employee is at work when the group cover is put in place and can fulfil the actively at work requirements of the group insurer, they are fully covered for death and disability benefits.
Group insurance covers are designed to be tax efficient, so there can be tax advantages over individual covers:
- Personal protection is paid for out of taxed income, while group insurances are, in the main, a fully allowable business expense and this further reduces the cost of the cover.
- The cost to an employer of providing group income protection (GIP) benefits or group life benefits are not treated as a benefit in kind for employees.
- Group life benefits provided via a discretionary trust generally avoid inheritance tax, which can be a substantial advantage these days when the value of an individual's house can take up most of the zero rate inheritance tax threshold.
- Lump sum group critical illness (GCI) benefits are not subject to tax.
In addition, where group income protection (GIP) is purchased, the benefit is paid to the organisation and so while taxable in the hands of the employee, it provides net relevant earnings and so is therefore pensionable. Whereas small selfadministered schemes, executive pension plans and self invested personal pensions have no waiver of premium, GIP can provide this benefit and can help continue to pay for pension saving during prolonged disability. In addition, where a waiver of premium is available, the terms (such as disability definition) are often better under GIP cover than individual cover. Advisers should quote with and without the waiver option on individual pension arrangements to assess the reduction in fund values where a waiver is adopted, as the findings of this can be shocking and once again will justify the GIP route.
Personal income protection benefits may reduce the amount paid by the State in the form of the employment and support allowance, while group benefits are not. In effect, an individual employee is subsidising the State and reducing the income they would gain having paid for the insurance benefits from taxed income.
Group risk concerns
One of the concerns of the group risk market has been the administrative burden of running such schemes, but with online portals now offering on the spot quotes, pre-populated proposal forms, annual accounts, online administration for new entrants, management reports and commission summaries, the client servicing aspect has never been in better shape.
As further evidence of market innovation, group products now benefit from a range of value added features with areas such as employer and employee assistance programmes, online health risk assessment or HRA portals, double/second diagnosis services, bereavement counselling etc. Such services are simply not available on personal products and as a result will be highly valued by individuals, not only in a claim scenario but on a daily basis.
As an adviser guided by treating customers fairly (TCF), it is becoming ever more important to differentiate yourself from the plethora of advice available and specifically the comparison websites. Hence, with a significant threat to the real value of advice, client relations can be much enhanced by showing the client that you have their best interests at heart and that through providing a group rather than individual recommendation that it is costing you money to do so. In turn, rather than advising two directors you could end up talking to their staff to increase your prospect list (best achieved by doing a benefits event face to face to explain what they have) and of course any pension or high commission paying products would be fully protected by offering group protection rather than individual.
Therefore it is definitely worth some time considering group benefits as they are much more than just loss leaders for advisers with business growth ambitions. Especially in the current environment where if it costs less, covers more people, is easily administered and provides more comprehensive support clients will definitely want to meet to explore it further.
Paul Avis is sales and marketing director at Canada Life Group Insurance
