Employees already reeling from reduced or unpaid salaries could be at even more of a disadvantage should they also forfeit their unapproved risk benefits. ‘Losing these benefits could be detrimental to employees given the Covid-19 pandemic, and employers should do whatever they can to maintain them,’ says Deirdre Phillips, partner at law firm Bowmans.
Unapproved benefits vs approved benefits
Unapproved benefits are those typically covered under a separate insurance policy, most commonly a group life insurance policy, where the employer is the policyholder responsible for the premium payments. Examples of the risk benefits such policies may offer are death, disability, ill-health, disease, income protection and funeral benefits.
The danger with these benefits is that they might fall through the cracks if employers, focussing on other pressing issues, do not pay sufficient attention to them.
Approved risk benefits are death and permanent disability benefits provided by a retirement fund through a policy between it and the insurer. The retirement fund is the policyholder covering the premium through a portion of the contributions paid to it.
Employers should note that unapproved risk benefits are treated differently for tax purposes than approved risk benefits.
What should employers consider?
‘Premiums towards unapproved risk benefits are usually a factor of an employee’s remuneration and any reduction in salaries is likely to result in reduced cover,’ says Phillips. ‘Where employers reduce salaries, they must consider whether the reduction will impact on the cover provided and the premium payable towards unapproved risk benefits.’
Where cover and premiums are affected, employers should manage any adverse impact on employees by liaising either with their benefit consultants or brokers, or directly with their insurers.
Even in cases where financially ailing employers have stopped paying salaries, there are options employers can consider to keep the policies for unapproved benefits active, Phillips says. ‘Arrangements should be made to continue paying premiums even if these cannot be deducted from remuneration and to agree for the amounts to be deducted from future salaries as and when they are paid.’
If there is any prospect of losing cover, employees must be advised of this and given the opportunity to make alternative arrangements.
While approved risk benefits are less likely to be at risk, as retirement funds are responsible for them, difficulties could arise where contributions to retirement funds have been reduced or suspended. ‘Where this has happened, the premiums to cover approved risk benefits should remain intact. Employers will need to make arrangements to ensure that they do remain intact,’ Phillips says.
Premium relief is now possible
The arrangement could include premium relief by the insurer, in line with the exemption notices issued by the Financial Sector Conduct Authority (FSCA) on 15 April 2020 in relation to short-term and long-term insurers.
According to the FSCA’s communication, published together with the exemption notices, the FSCA acknowledged the potential impact COVID-19 and the national lockdown may have on the ability of affected policyholders to pay the premiums due under their policies. The exemption notices are aimed at facilitating premium relief to policyholders and set out the conditions insurers must comply with should they agree to grant premium relief.
In essence, premium relief relates to the temporary release from the policyholder’s obligation to pay the premium payable under an existing policy in whole or in part. The relief measures permit non-payment of premiums for a limited amount or allow for an extended period of grace for the payment of the premium due to the insurer – without reducing or limiting any policy benefits under the policy.
‘To determine whether such relief will be granted, employers should contact their insurers,’ says Phillips. ‘I cannot emphasise enough how important it is for employers to keep their eye on the ball when it comes to risk benefits, approved and unapproved. The COVID-19 pandemic has heightened the importance of having access to such benefits, the loss of which could leave employees exposed at a time when they can least afford it.’
Written by Deirdre Phillips, partner at Bowmans