Group Life Insurance: A Compulsory Cover In Nigeria?

In Nigeria, group life insurance is compulsory for employers in the public and private sectors with more than five employees, as per the Pensions Reform Act of 2004 (PRA 2004). This act was reenacted in 2014 and mandates employers to maintain a life insurance policy for their employees for a minimum of three times the annual total emolument of the employees. The cost of this insurance is to be entirely borne by the employer. The National Insurance Commission (NAICOM) has approved a rate of 6 per mille as the industry benchmark for group life insurance.

Group life insurance is compulsory by law in Nigeria

Group life insurance is a type of insurance that covers a group of people under a single contract. Commonly, the policy owner is an employer or an entity such as a labour organisation, and the policy covers employees or members of the group. In Nigeria, group life insurance is compulsory by law, specifically by virtue of the Pensions Reform Act of 2004 (PRA 2004). This Act was reenacted in 2014, and it applies to employers in the public and private sectors with more than five employees.

Legal Requirements for Employers in Nigeria

According to Section 9, Subsection 3 of the PRA 2004, employers are required to maintain a life insurance policy for their employees for a minimum of three times the annual total emolument of the employees. This means that the insurance coverage must be equivalent to at least three years' worth of the employee's total annual salary and benefits. The cost of this insurance cover is to be entirely borne by the employer, and the policy is renewable annually.

Importance of Group Life Insurance

The rationale behind making group life insurance compulsory in Nigeria is to provide financial protection for the families and dependents of employees in the event of their death. This type of insurance ensures that the dependents of a deceased employee receive a benefit called "the sum assured", which helps to cushion the financial impact of the employee's death.

Consequences of Non-Compliance

Employers who fail to comply with the PRA 2004's provisions on group life insurance face both civil and criminal legal consequences. Section 4(6) of the Act states that employers who fail to make the required payments must arrange to effect the payment of claims arising from the death of any staff member during the period of non-compliance. Additionally, Section 99(1) of the Act imposes a fine, imprisonment, or both, for any person who contravenes the provisions of the Act.

Calculating Group Life Insurance Premiums in Nigeria

The formula to calculate group life insurance premiums in Nigeria is:

Premium = Sum Assured (Total Annual Emolument * 3) X Rate / 1000

The Pensions Reform Act of 2004 made it compulsory

In Nigeria, group life insurance is compulsory by law. This is by virtue of the Pensions Reform Act of 2004 (PRA 2004), which was reenacted in 2014. The Act makes group life insurance compulsory for all employees in the public and private sectors, as well as clubs and associations. It is important to note that this only applies to employers with more than five employees.

Section 9, Subsection 3 of the PRA 2004 requires employers to maintain a life insurance policy for their employees for a minimum of three times the annual total emolument of the employees. This means that in the event of an employee's death, their dependents will receive a benefit called "the sum assured", which is equivalent to three times the employee's annual salary. The rationale behind this is to provide financial support to the family and dependents of the deceased employee, cushioning the effect of their death.

The cost of this insurance cover is entirely borne by the employer, and the underwriting requirements are more favourable and less stringent than those for individual life insurance policies. The National Insurance Commission (NAICOM) has set the industry benchmark for group life insurance rates at 6 per mille.

Prior to the PRA 2004, employees and their dependents were often left vulnerable due to the limitations of the Workmen's Compensation Act of 1987 (WCA 1987), which did not provide coverage for employees outside of work hours. The PRA 2004, now amended to the PRA 2014, addressed this issue by making it compulsory for employers to provide a group life insurance cover for their employees, in addition to setting up a contributory pension scheme.

The PRA 2004 has had a significant impact on employee welfare in Nigeria, and non-compliance by employers can result in both civil and criminal legal consequences. However, it is important to note that the provision for group life insurance in the PRA is often ignored or deliberately avoided by employers, leaving dependents of deceased employees without support.

Employers must pay for group life insurance

Employers in Nigeria must pay for group life insurance for their employees. This is a legal requirement as outlined in the Pensions Reform Act of 2004 (PRA 2004) and further detailed in the 2014 reenactment (PRA 2014). The PRA mandates that employers maintain a life insurance policy for their employees, covering a minimum of three times the annual total emolument of the employees. This includes basic salary, transport, and housing allowances. The cost of this insurance is to be entirely borne by the employer, and the policy is to be separate from any contributions made to an employee's Retirement Savings Account.

The National Insurance Commission (NAICOM) and the National Pension Commission (PenCom) jointly regulate group life insurance. PenCom has emphasised that group life insurance is a right and a condition of service for all employees in the public service of the Federation, Federal Capital Territory, and states that have implemented the Contributory Pension Scheme, as well as the private sector.

The importance of group life insurance cannot be overstated, as it provides financial security for employees' families and dependents in the event of their death. It is a benefit offered by employers to their workers, ensuring that their loved ones receive a benefit called "the sum assured". This sum is typically three times the annual total emolument of the employee and is paid out to the next of kin or dependents.

Group life insurance policies are generally more affordable for employers than purchasing individual life insurance plans for each employee. This type of insurance also provides benefits beyond financial coverage, such as higher employee retention, increased morale, and improved productivity. It is a valuable tool for employers to protect their workforce and provide peace of mind for their employees.

While group life insurance is now a legal requirement for employers in Nigeria, it is important to note that compliance rates are not universal. As of August 2023, only six out of 36 states in the federation and the Federal Capital Territory (FCT) had complied with the group life insurance scheme for their workers, leaving 30 states without coverage for their employees. This highlights the need for continued advocacy and enforcement of this important employee benefit.

The insurance is for a minimum of three times the employee's annual salary

In Nigeria, group life insurance is compulsory by law. The insurance is for a minimum of three times the employees' annual salary. This is outlined in the Pensions Reform Act of 2004 (PRA 2004), which states that employers must maintain a life insurance policy for their employees for a minimum of three times their annual total remuneration. This means that if an employee earns a yearly salary of $30,000, the employer must provide a life insurance policy worth at least $90,000.

The purpose of this requirement is to protect employees and their dependents in the event of the employee's death, accident, or other specified conditions. It ensures that the employee's family will have financial support and provides peace of mind for the employee, knowing that their loved ones will be taken care of.

The group life insurance policy is typically owned by the employer, and the cost of coverage is far less than what individual employees would pay for their insurance. The premium amount payable under a group plan is significantly lower than individual life insurance plans purchased separately for the same number of people. This makes it a cost-effective option for employers to provide valuable protection for their employees.

The eligibility requirements for group life insurance in Nigeria include a letter of appointment, certificate of registration or incorporation, Form CO7 of the assured, means of identification of two directors of the company, and a full schedule of staff under the scheme. The insurance contract is between the insurance company and the group, and the participating group members receive certificates of coverage.

The group life insurance rates vary depending on the members' age, but the industry benchmark approved by the National Insurance Commission (NAICOM) is 6 per mille. The formula to calculate the premium for group life insurance in Nigeria is: Premium = Sum Assured (Total Annual emolument * 3) X Rate/1000.

Dependents of a deceased employee receive a benefit called the sum assured

In Nigeria, group life insurance is compulsory for employers by virtue of the Pensions Reform Act of 2004 (PRA 2004). This act requires employers to maintain a life insurance policy for their employees for a minimum of three times the employee's annual total emolument.

The sum assured, or the total annual emolument, is multiplied by three to calculate the minimum benefit that dependents of a deceased employee will receive. This sum is then multiplied by the rate per mille (approved by the National Insurance Commission) and divided by 1000 to determine the premium.

The sum assured is payable to the beneficiary in the event of the death of a member of the scheme from any cause, be it natural or accidental. Some policies also provide for the payment of the sum assured in the case of the disappearance of an employee, provided they have not been seen for 12 months and there is sufficient evidence to assume they are deceased. In such cases, the recipient of the sum assured must sign an undertaking to refund the money if the missing person is subsequently found alive.

The sum assured provides financial security and peace of mind for the dependents of the deceased employee, ensuring that they receive a lump sum of money to cover expenses and maintain their standard of living. It is an important aspect of group life insurance, offering a sense of security and motivation to employees, knowing that their loved ones will be taken care of in the event of their untimely death.

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