Group Insurance (Employee Benefits) FAQ

Group insurance (also called an employee benefits scheme or group scheme) is insurance arranged by an employer on behalf of their employees. The employer typically pays all or part of the premium, providing staff with life insurance, income protection, health cover, and sometimes trauma insurance, as part of their employment package.

Unlike personal insurance taken out individually, group insurance is arranged collectively, which often means simplified underwriting (fewer or no health questions for employees), lower per-person costs due to the group's size, and streamlined administration through a single employer policy.

In New Zealand, group insurance is increasingly recognised as a key employee benefit. Research shows 73% of NZ employees say benefits influence their decision to join or stay with an employer. Offering group insurance helps businesses attract and retain quality staff while demonstrating genuine care for their team's wellbeing.

Group schemes are available to businesses of most sizes, many NZ insurers offer group schemes from as few as 10 employees. Elan works with NZ businesses to design, implement, and manage group insurance schemes, from small firms to larger organisations.

Group insurance works by the employer taking out a single policy (or suite of policies) that covers all eligible employees. The employer pays the premium, either in full (non-contributory) or in part with employees topping up (contributory) and employees receive the insurance benefit as part of their total remuneration package.

There are two main structures:

Non-contributory: The employer pays 100% of the premium. This achieves maximum participation (all eligible employees are automatically covered) and creates the strongest perception of the benefit. Most common for life cover and income protection.

Contributory: The employer subsidises part of the premium and employees contribute the remainder via payroll deduction. This reduces employer cost but may result in lower employee uptake.

When an insured employee makes a claim, for example, a death, permanent disability, or extended illness, the insurer pays out directly to the employee (or their family in the case of life insurance) based on the policy terms.

Group insurance is reviewed annually. As staff numbers change and business circumstances evolve, the policy can be adjusted to reflect the current workforce. Elan can manage this process on your behalf.

A group insurance scheme in NZ can include one or more of the following cover types, depending on what the employer chooses:

Group life insurance: Pays a lump sum (typically 2–4x the employee's annual salary) to the employee's family or estate if they die or are diagnosed with a terminal illness while employed.

Group income protection: Pays a monthly benefit (typically 75% of salary) if an employee is unable to work due to illness or injury. Usually kicks in after a defined waiting period (e.g. 13 weeks).

Group health insurance: Provides employees with access to private healthcare, covering specialist consultations, surgery, and diagnostics. Often arranged through Southern Cross workplace plans or nib group schemes.

Group trauma insurance: Pays a lump sum if an employee is diagnosed with a specified serious illness (cancer, heart attack, stroke, etc.).

Employers can mix and match, for example, offering group life cover and income protection as the core benefit, with health insurance as an optional add-on employees can subsidise. Elan can help you design the right combination for your business size, culture, and budget.

The tax treatment of employer-paid group insurance in NZ depends on the type of cover and how it's structured. The general position is:

Group life insurance: Employer-paid premiums are subject to Fringe Benefit Tax (FBT). The premium is a deductible business expense, but FBT must be paid on it. Employees generally receive the death benefit tax-free.

Group income protection: Employer-paid premiums are generally tax-deductible as a business expense. The resulting benefit payments are taxable income for the employee — consistent with the personal income protection tax treatment.

Group health insurance: Employer-paid health insurance premiums are subject to FBT. This means the employer pays tax on the value of the premium provided to employees, but the premium itself is a deductible expense.

Group trauma insurance: Premiums paid by the employer are generally not tax-deductible (consistent with the personal trauma tax position), and any payout is tax-free to the employee.

The tax position can vary depending on policy structure and individual circumstances. Elan strongly recommends confirming the specific FBT and deductibility position with your accountant when designing a group scheme.

Most NZ insurers offer group insurance schemes from a minimum of 10 employees. Some insurers require at least 15 employees for certain products, particularly group income protection.

For smaller businesses (10 - 15 staff), fewer products may be available and per-person costs may be higher than for larger groups. However, group schemes can still be more cost-effective than individual policies for a small team, particularly for life cover.

For businesses with 15+ employees, the full range of group insurance products is generally available, and insurers may offer preferential underwriting terms, meaning some or all employees can join without individual medical questions.

As your workforce grows, your group scheme can be adjusted. New employees joining an established scheme often benefit from streamlined entry conditions. Elan works with NZ businesses of all sizes, from 10-person firms to organisations with hundreds of staff, to design schemes that scale appropriately.

Group life insurance (also called employer life cover or death-in-service benefit) pays a tax-free lump sum to an employee's family or estate if they die or are diagnosed with a terminal illness while employed. It's typically set at a multiple of the employee's annual salary, commonly 2x, 3x, or 4x, and is the most common core benefit in NZ group schemes.

From the employee's perspective, group life cover is often the most immediately tangible employee benefit, it provides genuine financial protection for their family at no out-of-pocket cost to them. Many people have need for life insurance, and if an employer can assist with at least a small amount of it, this is seen as a huge positive in the eyes of the staff member.

From the employer's perspective, it's a relatively affordable benefit that makes a meaningful statement about how much you value your team. It's also a differentiator in recruitment, many candidates, especially those with families or mortgages, specifically look for employers who provide life cover.

Group life insurance doesn't replace personal life insurance (employees may need more than 2–4x salary to cover their full financial obligations), but it provides a meaningful base of protection. Elan can help employees understand how group life cover sits alongside any personal policies they hold.

Group income protection (also called employer income protection or group salary continuance) pays a percentage of an employee's salary, typically 75% if they're unable to work due to illness or injury. It kicks in after a defined waiting period (commonly 13 weeks) and pays until the employee returns to work, reaches the end of the benefit period, or turns 65.

Group income protection is particularly valuable because it covers illness, the most common cause of long-term work absences in NZ. ACC only covers injuries; without employer income protection, an employee who's off work with cancer or a mental health condition for 6+ months has very limited financial safety net.

For employers, group income protection:

- Demonstrates genuine care for employee wellbeing

- Reduces the pressure on remaining staff to cover for long-absent colleagues

- Provides clarity on obligations, the insurer manages the ongoing liability

The cost to employers is typically 0.5–2% of annual payroll, depending on the workforce profile. Elan can assess whether group income protection makes sense for your business and identify the most competitive NZ provider for your employee profile.

Group insurance provides a valuable foundation, but it may not be sufficient on its own for all employees, particularly those with larger mortgages, dependents, or specific financial obligations.

Common gaps in group schemes:

- Group life cover of 2–3x salary may not be enough if an employee has a large mortgage and young family (personal life insurance of 10x salary is often recommended, or your mortgage amount)

- Group income protection may not cover the full 13-week waiting period before it kicks in, the employee needs savings or sick leave to bridge this

- Group health insurance may not include the level of cover (or optional extras) the employee needs

- Cover ends when the employee leaves the job, there's no portability unless the individual converts to personal cover and begins paying the full premium themselves.

This is why financial advisers often recommend that employees understand their group cover as a starting point and assess whether personal policies are needed to fill the gaps. Elan can review an employee's full insurance position, group and personal, and advise on any shortfalls, at no cost to the individual employee.

Group insurance cover ends when an employee leaves the company. It's employment-linked, not portable. When someone resigns, retires, or is made redundant, their cover under the group scheme ceases, usually at the end of the last day of employment.

This is one of the most important things for employees to understand: the group cover does not follow them to their next employer. If they have a health condition that developed during employment, they may find it harder (or more expensive) to get personal insurance when they leave.

Some NZ group insurance policies include a "conversion option" which allows a departing employee to convert their group cover to a personal policy without new medical underwriting, within a specified window after leaving. This is especially valuable for employees whose health has changed while employed.

If you're an employee leaving a role and you currently have group cover, Elan recommends reviewing your personal insurance position before your last day, so there's no gap in protection. If you're an employer, informing departing staff of the conversion option is good practice and demonstrates a continued duty of care.

One of the major advantages of group insurance is simplified or guaranteed underwriting. Depending on the scheme size and the insurer's terms, employees may be able to join without answering any health questions at all.

For larger schemes (typically 15+ employees), many NZ insurers offer "free cover limits", meaning each employee is covered up to a set benefit amount (e.g. $300,000 of life cover, or $5,000/month income protection) with no medical questions required. Only employees who want cover above the free cover limit need to provide medical evidence.

For smaller schemes, some underwriting may apply, but it's typically less rigorous than individual underwriting. Employees joining a group scheme are assessed as part of a pool rather than individually, which generally results in more favourable terms.

This is a significant advantage over personal insurance for employees with pre-existing conditions, who may find group cover easier to access than individual policies. Elan can help you understand the specific underwriting rules of different NZ group insurance providers.

Group insurance costs vary depending on the scheme size, the types of cover included, employee demographics, and the level of benefits provided. As a general guide:

Group life insurance: Typically costs 0.2–0.5% of total insured salaries per year

Group income protection: Typically costs 0.5–2% of total salary expenditure per year, depending on the waiting period and benefit period chosen

Group health insurance: Varies significantly, from around $50–$150 per employee per month depending on plan level

Group trauma: Typically costs 0.2–0.6% of insured salaries

For a business with 10 employees and an average salary of $80,000, a basic group life AND income protection scheme might cost $10,000–$20,000 per year total, roughly $1,000–$2,000 per employee, or $80–$170 per employee per month. Often employees will value this insurance packet as more than this when assessing different job offers. This is because the pricing will generally be slightly more affordable than personal benefits (economies of scale) but also the convenience factor of getting this cover by default and not having to personally apply for it.

When viewed as a per-employee benefit, group insurance often represents very strong value compared to equivalent individual policies. Employers can also offset some cost against tax-deductible business expenses. Elan can prepare a detailed cost comparison for your specific business and workforce.

Offering group insurance is one of the most valued and cost-effective employee benefits available to NZ employers. Here's why it matters:

Talent attraction and retention: Research shows 73% of NZ employees say employee benefits influence their decision to join or stay with an employer. In a competitive labour market, group insurance is a meaningful differentiator, especially for candidates with families or mortgages.

Genuine duty of care: Providing life cover and income protection demonstrates that you value your people beyond their output. It sends a powerful message about your workplace culture.

Financial efficiency: Group insurance premiums are lower per person than equivalent individual policies. You're accessing wholesale rates, not retail.

Productivity and morale: Employees who feel financially secure are more focused and engaged. Knowing that their family is protected if something happens to them reduces financial anxiety.

Tax efficiency: Employer-paid premiums can be structured as a deductible business expense (noting FBT implications, see your accountant).

Elan specialises in designing and managing group insurance schemes for NZ businesses of all sizes. They can assess your workforce, recommend an appropriate structure, and manage the scheme on an ongoing basis, including handling claims support for your employees.