Your group life cover should help to plug the gap that most South Africans have between the life and disability cover they need and the cover they have.

But many group life schemes are structured in such a way that they are unlikely to provide adequate cover at lower ages and may provide too much cover at higher ages.

BrightRock, a relatively new life assurer, has entered the group life market with an offering it claims can enhance the amount of life, disability and dread disease cover employers can buy for almost all their employees by between 30% and 40%.

CEO Schalk Malan says BrightRock believes its offering can enhance cover for 90% of employees.

BrightRock provides an equal level of cover for lost income to all employees - for example, 30% of future income needs - with the insured amount that is determined by your age and income needs.

Group life cover provided by employers or through retirement funds is an important benefit because most South Africans are woefully underinsured for death or becoming disabled.

The 2016 Insurance Gap Study commissioned by the Association for Savings and Investment South Africa found that across all age groups, the cover in place met on average only 41% of the actual insurance need.

This means most South Africans or their families will have to cut their living standards substantially should the breadwinner die or become disabled.

The primary objective of a company that offers employee risk benefits is to protect the future paycheques of its employees, and benefits are typically structured as a multiple of your salary.

Your group risk benefit may cover you for anything from one times your salary to 7.5 times your salary.

But this structure is out of line with the needs of employees who at younger ages may need 10 to 15 times their annual salary in cover, as opposed to older employees whose need for risk cover is much lower, Malan says.

However, older employees often have the highest amount of cover as they typically earn more, and as a result the largest percentage of their need for life assurance is covered. Sometimes executives enjoy higher multiples of cover than lower earners.

Providing cover as
a fixed multiple of
the employee’s
salary is a blunt
Schalk Malan, CEO of BrightRock

Providing cover as "a fixed multiple of salary is a blunt approach", Malan says.

Jason Cooper-Williams, the head of business development at General Reinsurance Africa, says a better approach, which is used in some schemes, is to base the salary multiple on your age band.

In this case younger employees would, for instance, get 10 times their annual salary in cover and the multiple reduces as the employee gets older. This better reflects the needs profile of members, he says.

However, many employers opt to offer a base level of risk cover to all employees who are then expected to take care of additional needs themselves, says Cooper-Williams.

If your group life scheme offers you, for example, R3-million life cover, there is no link to your needs. You don't know if that sum is too much or too little, or whether it will adequately protect your family when you are gone, Malan says.

BrightRock calculates - and discloses to those it insures - the total value of each employee's future paycheques. It then covers the same percentage of this need for each employee. This is not only a fairer split of the group's cover but also a far more efficient way to structure and price cover, Malan says.

Ian Beere, an independent adviser and director at Netto Financial Services, says people's life cover needs vary. A person in their 20s may not need any life cover because they have no dependants, but a 36-year-old who has bought a house with a bond, is married and has children, may need 10 times their annual salary.

The ideal situation is where an employee can opt out of enjoying the default amount of cover and choose their own level, but there is a cost to providing this flexibility, he says.

Wynand Venter, an independent financial and employee benefits adviser with Wynsam Wealth, says it is difficult to comment on a new life assurer's offering until you run quotes for a group using the groups' claims history.

Insurers compete fiercely on group life offers and premiums are very competitive, but Venter is concerned about how sustainable some providers' premium rates are. Disability cover rates especially are under pressure as claims ratios are currently unfavourable.

Venter says the current trend towards "total reward" or "cost to company" structures has highlighted each and every cost in an employee's package.

At many companies, high earners are already subsidising the group life cover of lower earners. Many company executives have found that it would be cheaper for them to take out individual life and disability cover.

Venter says he is not sure how much more higher earners in companies will be prepared to subsidise their colleagues' life cover. Social solidarity issues need to be carefully explored when it comes to costing group risk benefits.

However, if group life benefits are structured correctly, the difference they make to take-home pay can be regarded as an asset rather than a liability, he says.

Another problem with current group life schemes is that often when you resign from your job you lose your risk cover. While some group schemes have what is known as a continuation option offering employees who leave their employment to convert to an individual policy, this is not the default option in the market, Cooper-Williams says.

Malan says BrightRock's group risk cover is portable, as employees may convert their group risk cover to a full comprehensive policy with no underwriting and at the premiums charged at the relevant age rate for the group. He says BrightRock has also tackled the uncertainty of whether an illness or disability on a group life scheme will qualify for a claim with a list of 67 disabling conditions covered, and, if you do not meet these criteria, a job fitness test may qualify you.