Group life cover tied to your work

Insurance cover
Insurance cover

Group life cover is an employee benefit which you may enjoy automatically either through your membership of your employer's chosen retirement fund or by way of cover provided from a policy your employer has bought for all its workers.

These schemes typically pay a lump sum in cash to your beneficiaries in the event of your death, according to a definition by Liberty Life.

"Benefits are expressed as a multiple of salary [for example, three times your annual salary] or as a rand amount.

"Members' beneficiaries have the flexibility to use the cash lump sum pay-out as they see fit."

This means benefits can be used to pay for the education costs of dependants or dependants can take the pay-out and use it to buy a regular income.

If you are sickly, one of the benefits of group life cover is that you are not assessed individually on the risk that you might die, contract a deadly illness or become disabled. The life assurer assesses the risk profile of the entire "group".

This means that this type of cover would cost you more if you were to buy it as an individual. Typically, it's also cheaper because administration costs are spread; the life assurer issues one policy with a multitude of members.

Group life benefits differ from employer to employer. For example, your policy or scheme may pay you a death benefit as well as a disability benefit - either a lump sum or a monthly income benefit, also known as income protection.

Or you may be fortunate enough to enjoy cover for death, disability and critical illness too. In the event of your death, the payout may be a multiple of your annual salary - say, three, four or five times your annual salary, for example - or it may depend on your age at the time of your death.

When the payout is based on age, the amount decreases as you get older - the idea being that the older you are, the less debt you would have and the greater your retirement savings would be.

Retrenchment cover could be included in a group life policy, but it is not common, says Michael Prinsloo, the head of institutional research and product development at Alexander Forbes.

If you are retrenched, you can withdraw your retirement benefit and it can be taxed as a severance benefit and not as a withdrawal [so there will be less tax payable], Prinsloo says.

Group life cover is only in force for as long as you are an employee.

When you move jobs or get retrenched, the cover falls away - leaving your dependants vulnerable if you have no other insurance.

Some group schemes include a conversion option allowing you to convert group life cover to an individual policy on which you pay the premiums when you leave an employer.

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