Have group life assurance needs changed?
By Dirk Oosthuizen, Research and Principal Benefit Consultant
Recent census results have received some criticism but may still be useful to highlight some trends. Demographic changes over time are likely to manifest in different needs of employees and members of retirement funds.
There are many studies indicating that individuals are underinsured. Employer-sponsored group life arrangements, as part of employee value propositions, provide participating employees with easy access to life assurance, at the same time relieving employers of a potential moral obligation where an employee passes away. Ultimately, however, life assurance should address a financial need of the employee or member of a retirement fund.
Fertility rates and employee life assurance needs
Retirement funds typically use group life assurance to provide financial protection to families aimed at replacing the loss of income of a breadwinner in the household. The tax structure of a retirement fund is ideal to allow for the conversion of a death benefit into an income for dependants.
Unapproved group life assurance arrangements (i.e. non-retirement fund life assurance benefits) have a different purpose, typically paying out a cash benefit to deal with debt and other expenses at the time of death. However, have the needs of employees changed over time?
It is interesting to note that fertility rates have reduced significantly almost all over the world, including in South Africa. We define a fertility rate as the number of children a female will have over her lifetime. In South Africa, this rate has reduced from four children per woman in 1996 to 2.4 children in 2022. In many parts of the world, these rates have dropped to below 2.1 – the so-called replacement rate, or the rate at which you achieve a stationary population, ignoring immigration.
Current examples around the world:
| United Kingdom | 1.5 |
| Spain | 1.25 |
| Korea | 0.7 |
| Italy, China and Japan | 1.2 |
Sources: Financial Times, Economist
Adapting benefits to changing family structures
This means families are becoming smaller and populations, in general, are ageing. Of course, these rates are averages, which hide a lot of information. Surely, you will see larger families but also many single-person households, especially if viewed together with marital statistics. This seems to be a general feature of the modern, wealthier world.
The 2022 South African census indicated that about 32% of adults are married and approximately 8% of adults are in long-term relationships. The marriage rate dropped about 10% over the previous decade. Even though difficult to compare, in the early 1990s, marriage rates in retirement funds were around 80%. This indicates that there are more and more single-person and single-parent households today.
So, the question is whether benefit design in retirement benefits should be adjusted in line with the changes in family structures. It seems to be so. However, there are several other factors to be considered as well, such as the cost of education, the general cost of living and care. So even if family sizes have reduced, the capital required to take care of children if a breadwinner passes away may have increased.
Rethinking death benefits for evolving family structures
A flexible approach to death benefits may be a solution – for example, using a strong core group life benefit but also including flexible benefits where members can increase life insurance on marriage and childbirth or in the case of extended families.
Lower fertility and marriage rates, as well as improving longevity rates, also have significant implications for retirement provision in older populations and pay-as-you-go state retirement and health benefits. The assumption of a stationary population in any benefit design is, therefore, a dangerous one.
Read the article from FAnews Magazine-Online April 2024 edition