Group life insurance

A group life scheme is one insurance contract between an employer and an insurer covering a defined category of employees — often all permanent staff above a minimum number of hours. The employer owns the policy, the employees are the insured lives, and the benefit is generally paid on an employee’s death to their estate or a nominated beneficiary.

The benefit is normally a multiple of salary, the same multiple for everyone, which makes it easy to administer and explain. Some schemes use a flat sum insured, or a formula based on service or seniority. TPD and trauma cover can usually be added.

What makes a group scheme genuinely different from a set of individual policies is not price. It is underwriting. Insurers accept the group as a group and set an automatic acceptance limit — a level of cover below which any eligible employee is covered from the day they join, with no health questions and no medical tests. For a healthy 28-year-old that is a convenience. For a 52-year-old with a cardiac history it is close to irreplaceable, because it is cover they could not buy for themselves at any sensible price.

The corresponding weakness is just as important, and employees consistently misunderstand it. Group cover belongs to the job, not the person. It ends on resignation, on redundancy, and usually at a maximum age. An employee relying on a group scheme as their only life cover is one restructure away from being uninsured, at an older age and possibly in worse health than when they were first covered.

What an employer decides

• Who is eligible — usually permanent employees over a minimum weekly hours threshold.
• The benefit formula: a salary multiple, a flat sum, or a service-based scale. Apply it consistently.
• Whether to include TPD and trauma cover alongside the life benefit.
• The maximum entry and cover cessation ages.
• Who pays: the employer, the employee by deduction, or a split.
• How the scheme is communicated, which is where most of the value is won or lost.

The automatic acceptance limit

The automatic acceptance limit, or AAL, is set by the insurer at inception from the size and profile of the group. Every eligible member is covered up to that amount without underwriting. Cover above it — for a senior employee whose salary multiple exceeds the limit — is individually underwritten, and until that is complete the employee generally holds only the automatically accepted portion.

There are conditions, and they are worth reading rather than assuming. Schemes commonly require the employee to be actively at work on the date cover starts, so someone off sick when the scheme begins may not be automatically accepted. And the AAL is reset when the scheme is renegotiated, which can change who is covered without underwriting.

When an employee leaves

This is the conversation nobody has until it is too late. Cover ceases on the date employment ends. Many schemes include a continuation option letting a leaver apply for an individual policy, often up to the cover they held, without new medical evidence — provided they apply within a window frequently measured in weeks rather than months. Personal rates are usually higher than the group cost.

Tax treatment depends on the structure. Where an employer pays premiums for cover benefiting an employee, the arrangement generally raises either a fringe benefit tax or a PAYE question depending on how the benefit is provided and who is entitled to the proceeds, and the employer’s deduction follows from that. Have a chartered accountant confirm the treatment in writing before the scheme starts.

These are the details that decide whether the cover does what you expected. Read them before you compare on price.

• Whether the AAL covers your workforce, or whether senior staff sit above it and are unknowingly underwritten.
• The actively-at-work condition, and who in your business it currently excludes.
• Whether a continuation option exists, what the window is, and whether anyone in HR knows about it.
• What happens to cover during parental leave, extended unpaid leave and secondments, and while staff are overseas.
• How the benefit is paid — to the estate or under a nomination — because that changes who receives it and how quickly.
• The premium review cycle. Group rates are typically guaranteed for a set period, then re-rated on the group’s profile and claims.

Every New Zealand insurer writes group life cover to its own wording, and the words are where the money is. Two policies that look identical on price can pay very differently when it matters. Closing that gap is the entire job of an adviser.

• AALs and eligibility terms differ substantially between insurers for the same group, so the first offer is rarely the best one.
• An adviser can identify which employees fall above the AAL and get the excess underwritten before a claim rather than after.
• For employees whose group cover is their only protection, an adviser can quote personal cover alongside it.
• An adviser can manage the annual data refresh and re-rate, where schemes quietly drift out of line with the payroll.

There are three ways to buy life cover in New Zealand, and they are not equivalent. You can buy direct from one insurer, which means you see one product range and one underwriting appetite. You can buy through your bank, which usually means a single insurer’s product sold under the bank’s brand, often with narrower definitions. Or you can go through an adviser, who quotes several insurers at once and is required to put your interests first.

The premium you pay is the same either way. Insurers build adviser commission into their pricing whether or not an adviser is involved, so going direct does not get you a discount — it just removes the person whose job is to argue your corner at application and at claim time.

• An adviser can see which insurer is currently taking your health history on standard terms, and which one will load or exclude it.
• An adviser can structure cover across two insurers if that produces a better outcome than putting everything with one.
• An adviser handles the underwriting back-and-forth, and is the person who chases the claim when a family is least able to.
• An adviser has to document why the recommendation suits you, which is a written record you can hold them to.

We are a referral service, not an insurer. We do not quote premiums and we do not sell policies. What we do is put you in front of one licensed New Zealand adviser who can compare the market properly.

1. 1

   You tell us what you are looking at

   The form takes about a minute. Nobody asks for your medical history on a web form — that conversation happens with the adviser, properly, and only once you have decided to proceed.

2. 2

   An adviser calls you

   A licensed New Zealand adviser talks through your situation: who depends on you, what you owe, what you already have in place, and what you are actually worried about.

3. 3

   They compare the market

   The adviser quotes across the major insurers, checks which of them will take your health history on the best terms, and puts the options side by side in writing.

4. 4

   You decide, in your own time

   There is no obligation and no cost to you. If the answer is that you already have enough cover, a good adviser will tell you that.