Wednesday, 25 April 2018
Group life insurance: "I didn't realise it was so cheap"
The universal reaction from small employers when benefits.market displays an indicative price for buying employee life insurance for the entire company is: “I didn’t realise it was so cheap”.
One of the barriers to small employers buying any type of group risk product is a preconception that it will be expensive. Another barrier is that they believe they have to appoint a financial adviser.
Neither are true.
And yet there is a simple and positive reason why proprietors of small businesses should explore buying group life insurance before they consider taking out an individual policy on their life:
An individual policy often costs more and provides an insurance policy with less value.
Group policies often require no medical questionnaires and insure more people for an overall lower cost.
For many of the 965,515 small business owners in the UK who employ between 2 and 9 people (source 2017 ONS business population estimates) group life insurance will simply be cheaper than insuring just their own life.
Here’s an example: a 47 year old business owner seeks a £180k benefit from life insurance (3 x her £60k salary). If she bought her life insurance from an internet insurance comparison site it would effectively cost her £879.20 per year. But if she bought the same level of cover (3x salary) for herself and all 7 of her employees then it would cost the business £262.09.
That’s a staggering difference of £617.11 per year.
At first glance, this is counter-intuitive: the price of insuring 8 people is significantly less than the price of insuring 1 person (who is also a member of the group of 8).
But, of course, it’s all about risk.
Group insurances spread the risk over the group, making the chances of an insurance pay out more predictable and therefore easier to cost for (from an insurance company perspective).
In this example I gave my fictitious business owner a passion for scuba driving (in the UK!) and Gliding. These are 2 relatively high risk hobbies. But this is not an issue for group life insurance where there is no requirement for medical underwriting. On a individual policy, these slightly riskier activities would certainly push her individual premium up.
Historically, group risk insurance is sold to employers as an employee benefit e.g.: “give your staff more financial protection”; “help reduce their money worries”, or “improve your employee retention and attractiveness etc.”
These statements are as true for small employers as they are for larger employers (who are the traditional purchases of group risk). But what works as a sales strategy on the HR departments of large employers may not be as successful at influencing small employers.
When I think about how to increase sales of group risk to small employers I don’t just think about how to advocate the benefits of group insurance for their employees. I also think about how to tell business owners who currently buy their own individual life insurance to take a look at group life insurance… and then review what value for money really means.
About the author
The author is the founder of pensionsync and benefits.market. benefits.market is an online comparison site for group life, sickness, and health insurances. Small employers can open a benefits.market account directly at www.benefits.market or through their pensionsync account.
pensionsync is a cloud SaaS data exchange which automates the delivery of employer’s data to autoenrolment pension providers in the United Kingdom.
The data behind the example