A lagos based business with twenty (20) staff on its payroll recently lost a staff member after a brief illness. the family of the deceased staff approached the company and asked for the payment of life assurance by the company. the company had no active policy in place and simply replied that they have no insurance policy for their staff.
The deceased’s family sued the small company, and they were meant to pay the three years of annual emolument for the deceased staff. the company was also made to pay extra penalties, as the deceased’s family claimed that the failure of the company to provide for life assurance had caused the family considerable damage, as they could not pay school fees and rent for the surviving family of the deceased.
In Nigeria, the Group Life Assurance policy is not just a legal requirement for companies; it is a critical safety net for employees and their families. Yet, many employers continue to neglect this duty, exposing themselves to significant financial and legal risks.
This Pinnacle Daily analysis examines the legal, financial, and reputational consequences of failure to comply with group life assurance provisions, shedding light on the importance of ensuring compliance.
The Legal Framework for Group Life Assurance in Nigeria
Under the Pension Reform Act 2004 (Amended 2014), Nigerian companies with five or more employees are legally mandated to provide Group Life Assurance to their staff. This policy is designed to provide financial security to the families of employees in the event of an untimely death.
However, despite this requirement, a worrying number of Nigerian businesses have failed to comply.
The National Insurance Commission (NAICOM) and PenCom regulations further reinforce this obligation, requiring employers to provide coverage equivalent to at least three times the annual salary of each employee. Failure to provide this coverage can expose companies to severe financial penalties and legal action.
Legal Penalties and Financial Risks
The penalties for failing to comply with Group Life Assurance requirements are severe, with employers facing both financial and legal consequences.
A notable case in the National Industrial Court (Collins U. Okeke & Another v. Delog Medical Services Limited) highlighted the serious repercussions for employers who neglect to insure their employees.
The court ruled that the employer’s failure to provide life assurance violated the law, resulting in the company being held liable for damages. Employers found in breach may face hefty civil liabilities and could be forced to pay out death benefits directly from their own funds.
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Penalties for non-compliance extend beyond legal action. Employers who fail to provide Group Life Assurance may be compelled to pay three times the deceased employee’s salary to the beneficiaries. Additionally, companies are fined for failing to take out the required policy, with penalties based on employee earnings.
Reputation and Employee Trust
Beyond the legal and financial consequences, failure to provide group life assurance carries significant reputational risks. Businesses that fail to meet statutory requirements can be seen as irresponsible by both employees and customers. This negligence erodes employee trust, leading to dissatisfaction and lower retention rates.
Furthermore, clients may lose confidence in a business that neglects its legal obligations, potentially resulting in loss of contracts and partnerships.
NAICOM and PenCom Enforcement
According to the Pension Reform Act, failure to provide Group Life Assurance could lead to direct penalties, including fines and charges on the employer’s profits.
NAICOM also requires companies to submit proof of compliance during annual audits, and failure to do so can result in the suspension of operating licences.
Furthermore, in the event of an employee’s death without proper insurance, the employer may be forced to cover the cost of life assurance out of pocket, a financial burden that could cripple smaller businesses.
Employer Responsibility and Risk Mitigation
Employers must take immediate steps to ensure compliance with the Group Life Assurance requirement. The cost of insurance is negligible compared to the financial and reputational risks associated with non-compliance.
Legal advisors and insurance brokers should be consulted regularly to ensure that the business complies with the law and secures adequate coverage for employees.
Furthermore, employees must be made aware of their rights, particularly in the event of an untimely death. Advocacy and education campaigns could play a crucial role in highlighting the importance of Group Life Assurance and ensuring that all Nigerian businesses are fully compliant.
Experts have warned that with clear laws in place, businesses must prioritise compliance to protect both their employees and themselves. As the regulatory environment tightens, it is essential that Nigerian employers act swiftly to mitigate risks and fulfil their obligations under the Pension Reform Act.
Sunday Michael Ogwu is a Nigerian journalist and editor of Pinnacle Daily. He is known for his work in business and economic reporting. He has held editorial roles in prominent Nigerian media outlets, where he has focused on economic policy, financial markets, and developmental issues affecting Nigeria and Africa more broadly.
