Business entities often regard Group Disability cover as a “grudge” purchase, since those involved in the arrangement of such cover are generally not the people involved in the operational logistics of the entity. To help a client select the right cover,
Group Disability “income protection” cover is taken out by an employer to protect the income of their employees and/or to protect the business entity against a “disability loss” of a key employee. But how many business entities assess their business risk due to a disability occurring to an employee?
The broker plays an invaluable role in helping business entities assess all the relevant business risks, considering the corporate “attitude” towards the “value” of employees and the particular skills offered by these employees.
Assessing the business risk
In assessing the business risk of employee disability, an entity needs to consider the potential loss of production that may occur should an employee be disabled. I recently did a joint call with a broker during which the client admitted that they would probably have to recruit a replacement employee from abroad, should any one of a number of employees be disabled or die.
If the business entity wishes to insure the business risk of temporary or permanent disability of key employees, the first consideration is whether the level/extent of cover is a factor of cost/benefit, or is it rather decided by the potential loss of production that may occur should an employee be disabled? Next, it must be established how to calculate the expected “loss” of production. Once this potential “loss” has been assessed, this “loss” must be insured, bearing in mind that one is generally only able to purchase cover for “loss of earnings”, not for “loss of production” or “loss of turnover”.
Protecting employee income
If an employee is injured and, as a result, is unable to work again, should the business entity be involved in sourcing “loss of earnings” cover at all? The business entity is liable to pay the mandatory sick leave days, should an employee be unable to work due to an illness or injury. Once this statutory sick leave period is exhausted, the question arises as to whether the business entity:
a) continues to pay the employee’s salary for an indefinite period – total cost to the employer;
b) does not pay any further salary, but maintains the employee’s position, while employing a temporary worker to fulfill the work duties of the absent employee – total cost to the employer;
c) purchases “income protection” cover; or
d) submits the necessary claim to COID, if the injury occurred while on duty.
If the decision is made to insure only the employee against “loss of earnings”, it must be decided whether the cover should extend for 12 months, 24 months, or to age 65.
Ironing out the details
Once the entity has decided to purchase income protection cover on behalf of employees, there are a number of considerations to assess.
• Is Temporary Cover or Permanent cover required?
• How does the cover selected fit in with statutory cover, such as COID and RAF, and will cover be available on a voluntary basis?
• Will the cover be indemnity cover or a stated monthly benefit?
Once the business entity has decided as to the level of cover, a decision should be made as to which insurance vehicle is best suited and which product is deemed a tax deductible expense.
These factors will differ from an organisation which is involved in general building construction to one involved in cell phone technology. The insight and advice of a broker is invaluable to ensure the entity selects the right cover, based on answers to pertinent questions.
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