Failing to ensure employee benefits are correctly aligned to contracts of employment could leave firms facing uninsured liabilities running into hundreds of thousands of pounds.
This is the warning from health and wellbeing intermediary Towergate Health & Protection, which warns that with many companies renewing their employee benefits in April, it is particularly important they pay attention to any potential pitfalls before they sign on the dotted line.
David Williams, head of group risk at Towergate Health & Protection, gives the example of a group life assurance policy that may be set up for instance to cover employees from day one of employment or after a probationary period.
Where an employer offers a role with a probationary period, the new employee may not be covered under the life assurance policy until this period has been successfully negotiated. While this is not an issue so long as the employee’s contract does not also offer life cover
until after this period, it can become a problem where employers use standard contracts, or offer off-the-shelf benefits, but do not align the two.
In the event an employee dies before their probation period has been completed, and their contract states they will receive a multiple of salary from day one of employment, this must be paid to fulfil the promise in their contract of employment, whether or not the employee is actually covered by the policy.
Under this example, with life cover at three-times salary, the family of an employee earning £50,000, would be due £150,000 which, if it is not paid out by the insurance company, would have to be met by the employer.
Williams also cites another example related to the state pension age which changed in October 2020, going up from 65 to 66 years of age.
He reveals that when speaking to potential new customers and checking their insurance details for the first time, it has not been uncommon for Towergate to witness employees working beyond age 65 who have inadvertently dropped off their employer’s group life assurance policy without anyone realising.
Similarly, the firm has also seen cases of ongoing group income protection claimants who
have suddenly lost their monthly claim payment as they pass 65. These are more examples of anomalies between insurance cover and contractual promises where the employer may stand to foot the bill, he adds.
According to Williams, the problem lies not within the insurance products, or in the employee contracts, but in the lack of reconciliation between the two.
When taking out any insurances for employees it is important for employers to receive advice from a group risk specialist, he says, adding that an expert in the field will be able to carry out an audit to ensure that the relevant documents and policies all align, and that the employer is not leaving themselves open to the risk of having to make a large payment themselves.
“The simple message is to take expert advice, speak to a specialist. Group risk policies like life assurance are highly valued benefits and cost relatively little to provide, but if the promise does not match the policy, it could prove very costly for the employer.”