FBT and employer-paid insurance premiums

Employer-provided insurance is one of the most common ways New Zealanders end up with life, trauma or health cover, and one of the least understood. The employer pays a premium, an employee is covered, and nobody in the arrangement is quite sure how it is taxed.

The starting point is that an employer generally gets a deduction for the cost of employing people, and insurance premiums provided as part of remuneration usually fall within that. The harder question is what happens on the employee’s side, and there the answer depends on the structure. Where the employer provides a benefit to an employee that is not salary or wages, fringe benefit tax can apply. Where the arrangement is in substance additional remuneration paid in a different form, PAYE treatment may apply instead.

The facts that decide it are ownership and entitlement. If the policy is owned by the employee, or the employee or their family is entitled to the proceeds, that points one way. If the employer owns the cover and receives the proceeds — key person cover, for example — that points another way entirely, because the benefit is to the business rather than to the employee.

The practical point for employees

Whatever the tax treatment, the more important feature of employer-provided cover is that it belongs to the job rather than to you. When you resign, are made redundant, or retire, group cover generally ends. It ends at the point you are least likely to be able to replace it easily, because you are older than when it started and your health may have changed.

• Find out whether the group scheme has a continuation option letting you convert to a personal policy without full underwriting, and by when it must be exercised.
• Check the sum insured. Group life cover is often a multiple of salary and is frequently well short of what a household actually needs.
• Check whether the cover includes trauma, TPD or income protection, or only life.
• Do not treat group cover as a reason to hold no personal cover at all. Treat it as a supplement.

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

• Whether the policy is owned by the employer or the employee — this is the fact everything turns on.
• Whether the arrangement has been documented, or has simply grown up over time.
• Whether FBT has been returned on the benefit where it applies.
• Whether the employee understands that the cover stops when the job does.
• Whether a continuation option exists and what its time limit is.
• Whether the employee has personal cover as well, sized to what the household actually needs.

Every New Zealand insurer writes employer-provided 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.

• An adviser can tell an employee exactly what their group cover does and does not do, which is rarely obvious from the scheme booklet.
• They will size personal cover to sit alongside group cover rather than duplicating it.
• They know which continuation options are worth exercising and when the deadline falls.
• For employers they can structure a scheme that the accountant is comfortable with, rather than one assembled ad hoc.

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.