Beware of blow to group disability benefits as employers cut back

Many employers and retirement fund trustees are reducing disability benefits on employee benefit schemes, leaving you potentially underinsured or faced with taking out often more expensive additional cover in your own name.

The changes employees face now are largely a result of a sharp increase in claims resulting from the economic downturn that began in 2016.

Statistics prepared by True South Actuaries for the Association of Savings & Investment South Africa show an increase of more than 32% in claims on group life and disability policies for the year to June last year.

Reinsurer Gen Re regional director for the UK, Ireland and South Africa Peter Temple said after the increase in 2016, claims across life assurers stabilised last year but at a higher level that has continued into this year.

Temple, basing his view on claims data for all major life assurers and some smaller players, says many large assurers have in recent financial statements noted losses on group disability policies.

All the assurers have or are in the process of increasing their premiums for disability cover, particularly those that provide a monthly income benefit, where premium increases have been between 30% and 40%, he said.

Sanlam Employee Benefits senior medical adviser Jack van Zyl described these high increases as a calamity that could have repercussions for you if you fall ill or are disabled.

Old Mutual’s head of group assurance product development Karen Louw said some group income-protection premium increases have been as high as 50%, but, on average, the increases in premiums since 2016 have ranged between 25% and 40%.

Van Zyl said some life assurers initially absorbed the costs of the rising claims for fear of losing business.

But now premium increases are forcing employers and trustees to choose between higher costs and lower benefits.

If your employer or trustees decided to contain the costs by reducing the cover you enjoy, you must check what effect this will have on the income you will derive from the group scheme and your individual life policies should you be disabled or severely ill.

For example, your scheme may reduce the percentage of your salary paid as an incomeprotection benefit.

Alternatively, if your disability benefit is a lump sum equal to, for example, seven times your annual salary, and this reduces to, for example, five times, this sum will provide a smaller percentage of your current income on disability.

Questions to ask about group disability benefits

1. Do you enjoy an income protection benefit or lump-sum cover, or both?

2. If you have an income-protection benefit:

● At what salary level does the income-protection benefit pay, and is it based on cost-to-company or pensionable salary?

● For how long does the benefit pay?

● What is the waiting period before the benefit pays?

● At what level does the income increase when you start claiming?

● Does the benefit pay if you are not able to do your own job, or not able to do a job similar to yours, or any job?

3. If you have a lump-sum benefit:

● How is the lump-sum benefit calculated?

● If it is based on salary, is it based on cost-to-company or pensionable salary?

● Does the benefit pay if you are not able to do your own job or not able to do a job similar to yours, or any job?

● Does the disability benefit accelerate the life benefit – that is, does the life benefit reduce if you claim the disability benefit?

● After settling your debts, what monthly income could the lump-sum benefit buy?

Sanlam Employee Benefits CEO Viresh Maharaj said disability income benefits provide necessary protection for most South Africans’ largest asset – their future earning potential.

These benefits are particularly relevant for younger employees with their whole career ahead of them and who require cover against the loss of decades of income should they become disabled.

Group life and disability benefits can be provided either through your retirement fund – known as approved benefits – or by your employer taking out what is known as an unapproved standalone benefit.

Typically, if your fund provides the benefits, part of the contributions your employer makes to the fund on your behalf may be used to buy the cover.

And if the premiums for this cover go up, less of the contributions made on your behalf will go towards your retirement savings. —

32% The increase in claims on group life and disability policies for the year to June last year