The president of a sports club would like to take out group accident or life insurance for the club's athletes and coaches, a professional chamber for its members, a local authority for its public works employees, the members of its council or even the schoolchildren of the municipality. In all three cases the question is the same: can something that is not a company's workforce be a “group”, and if so, for whom, for what and with what tax burden? As a broker, I see that group insurance is commonly identified with an employer benefit, although the arrangement is broader than that – but the legal relationship, the person paying the premium and the taxation follow a different logic from the company model. This article goes through these three differences.
- Under the Hungarian Civil Code (Ptk.), the insured persons in group insurance are defined by their belonging to an organisation or by their legal relationship with the policyholder – membership can be such a relationship, whereas a circle recruited solely to take out insurance typically cannot.
- An association, chamber or local authority can, as policyholder, take out group cover for its members, volunteers or residents if the insurer accepts the group; in personal insurance, the insured person's written consent is required.
- Taxation does not follow the employer model: a premium paid by the organisation may be the member's income or a certain specified benefit (a Hungarian employer-taxed benefit category), while a premium paid by the member triggers no taxable event – to be clarified with an accountant.
What makes a group a group?
Under Section 6:442(1) of the Hungarian Civil Code (Ptk.), in group insurance the insured persons are defined on the basis of their belonging to an organisation, their legal relationship with the policyholder or some other connection, and the insurer assesses and accepts the risk with regard to the group. The law therefore does not say that a group may consist only of employees. Insurers' policy conditions translate this into the language of practice: Hungarian collective (group) policy conditions typically treat as an insurable group a circle of persons in a legal relationship with the policyholder who meet a criterion set by the policyholder that is linked to that relationship and independent of the insurance contract – the examples include not only employment, public-sector employee and civil-servant status and other legal relationships for the performance of work, but even a customer relationship with a bank. Membership of an association or chamber is such a relationship, independent of the insurance. What typically does not get through the insurer's filter: a “club” organised solely so that its members can obtain insurance at a group premium.
Two further legal footholds. Under Section 6:440 of the Ptk., an insurance contract may be concluded by a person who has an interest in avoiding the insured event, or by a person who concludes the contract for the benefit of the interested person – an association contracting for the benefit of its members is the latter. In personal insurance, if the insured person is not the policyholder, Section 6:475 of the Ptk. requires the insured person's written consent to conclude and amend the contract; in practice this is the enrolment or consent declaration signed by the member. A good example is the members' life and accident insurance of the Hungarian Medical Chamber (Magyar Orvosi Kamara): the policyholder is the chamber, which pays the premium out of the membership fee, but only members under the age of 80 who have given a separate authorisation for this are insured.
Three organisations, three situations
Association. Besides the members, cover is often requested for volunteers as well. Act LXXXVIII of 2005 on Volunteer Activities in the Public Interest (Köt.) lists, among the benefits that do not count as consideration, life, health and accident insurance taken out for the benefit of the volunteer – covering death, bodily injury or damage to health occurring during the volunteer activity – and under Section 7(1)(y) of the Personal Income Tax Act (Szja tv.) such a benefit does not have to be taken into account when calculating income. However, this is cover for events during the activity, not 24-hour protection, and it applies only to volunteers engaged under a volunteer contract in accordance with the Act. For sports clubs, competitive sport is an exclusion or a risk subject to an additional premium in most policy conditions – this is covered in the article on sport and occupation; the risk of the particular sport must be disclosed when requesting a quote.
Local authority. Here it is worth separating the groups. Public works employees work under a public works employment relationship; the local authority is their employer, and the insurance works for them according to the employer model. Council members, committee members, civil guard members or volunteer firefighters are not employees, but their belonging to the organisation can be demonstrated – they are classic cases of a group within the meaning of the Ptk. The residents – children or elderly people living in the municipality – are the most distant connection: there are examples of a local authority taking out group accident insurance for the municipality's children, but this is where the precise definition of the group, the management of the list of names and the taxation require the most coordination. For a local authority, procurement may be governed by its own procurement rules and, depending on the value thresholds, by public procurement rules as well.
Chamber. For the members of professional chambers operating as public bodies, the link is the membership relationship, and the premium is typically paid out of the membership fee or from a separate member contribution. Here the headcount is large and the age profile wide, so insurers often require an upper age limit and an enrolment declaration.
Taxation: not the employer formula
The sentence familiar from company group insurance – the premium is a certain specified benefit (a Hungarian employer-taxed benefit category), with 33.04% in public charges – cannot be copied over without thought, because the logic of the Szja tv. starts from the legal relationship between the person paying the premium and the insured person. Under Section 3 point 89 of the Szja tv., a premium paid by another person is a taxable insurance premium for the insured individual; in group insurance – unless it can be determined otherwise on the basis of the contract – it is the part of the group premium proportionately attributable to the individual, and the group premium as a whole is taxed at the payer as a certain specified benefit (Szja tv. Section 3 point 89 sub-point bb and Section 70(6)(b)) only if the premium attributable to the individual cannot be determined even by apportionment. For a non-employer group, three outcomes follow from this.
- If the organisation pays the premium and the premium attributable to the member can be determined or apportioned, the member receives income whose type depends on their legal relationship with the organisation – without an employment relationship, typically other income, together with the payer's obligations.
- If the organisation pays the premium and the part attributable to the member cannot be determined even by apportionment – according to insurers' tax guides, this is so-called portfolio insurance (állománybiztosítás), where the insurer sets the premium for the group as a whole, with a headcount that changes during the year – the premium is a certain specified benefit at the organisation: 15% personal income tax and 13% social contribution tax on 1.18 times the premium, 33.04% in total, and the member has nothing to do.
- If the member pays the premium themselves and the organisation only collects and forwards it, there is no taxable event: the member pays out of taxed income, and no tax allowance is available for such insurance.
Cover for volunteers under the Köt. is a separate lane compared with the above, and benefits given by trade unions to their members have their own tax-exemption rule in Annex 1 to the Szja tv. – whether this can be applied to an insurance premium is an individual tax question. The association should also be aware of the borderline cases concerning members who pay KATA (the Hungarian lump-sum tax for small businesses) or flat-rate income tax. All three outcomes must be pinned down with the organisation's accountant or tax adviser before the premium is built into the membership fee; a separate article presents the basic picture from the company side.
The contract day to day: list of names, premium, leaving
The insurer accepts the risk with regard to the group, so a quote request needs the headcount, the age profile and the activity – without names or health data; the quote request data list can be used in the same way as at a company. The organisation keeps the list of insured persons from its membership register and typically reports joiners and leavers monthly; when membership ends, cover ends for that member, because belonging to the group is its basis. The premium is paid by the policyholder in a single sum, and the policyholder is responsible for it towards the insurer even if the members' contributions are late: in the event of non-payment, under Section 6:449 of the Ptk. the insurer sends a written reminder; if the 30-day grace period counted from the sending of the reminder expires without payment, the contract terminates retroactively to the due date, and reinstatement of cover can be requested within 120 days of termination. The organisation is also a data controller: it passes on members' data for the purpose of performing the insurance contract, and members must be informed of this. A claim for benefit – a fracture, hospital treatment, a death – is reported by the insured person or the beneficiary on the insurer's claims line; the organisation helps with the supporting documents but does not take the reporting over, and the same is true of me: if a case gets stuck or is disputed, I help where I can, acting on the client's behalf.
What should the organisation's leadership do?
First, where the decision is made: for an association or chamber, a resolution of the governing body and – if the premium is built into the membership fee – the part of the statutes on member services; for a local authority, a decision of the council and the procurement procedure. Second, the circle: whom the cover is for, which legal relationship proves belonging to the group, and who makes the declarations. Third, taxation, with the accountant, before the quote request, because the question of “who pays” also determines the structure. Fourth, informing the members: what the package covers, what it does not, and where a claim has to be reported. If these four points are in place and the organisation lets me know, I prepare the comparison and the paperwork; the insurer pays only for what is an insured event under the organisation's contract, so for the organisation an accurate description of the circle and the risk is not administration but the essence of the cover.
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Sources
- Hungarian Civil Code (Ptk., Act V of 2013) Sections 6:440, 6:442, 6:449 and 6:475 – insurable interest, group insurance, non-payment of premium, the insured person's consent
- Personal Income Tax Act (Szja tv., Act CXVII of 1995) Section 3 point 89, Section 7(1)(y), Sections 69–70 – taxable insurance premium, benefits for volunteers, certain specified benefits
- Act on Volunteer Activities in the Public Interest (Köt., Act LXXXVIII of 2005) Section 2(3)(g) – life, health and accident insurance taken out for the benefit of a volunteer is not consideration
- Hungarian Medical Chamber (Magyar Orvosi Kamara) – Group life and accident insurance for chamber members (policyholder: the chamber; premium from the membership fee; member authorisation)
- K&H collective (group) risk life, accident and health insurance policy conditions (2011/KALT, in force from 25 October 2013; copy published on a broker's website) – definition of the insurable group (I.3.)
- RSM Hungary blog: Employer group insurance – tax treatment of the premium from 2019 (apportionment, certain specified benefits)
- Adópraxis: Benefits that may be given to volunteers in the public interest (Köt., Szja tv. Section 7(1)(y))
- Generali – Tax changes from 2019 for insurance taken out by the payer (employer) (definition of portfolio insurance – állománybiztosítás)
