Group term life insurance is the term coverage offered to a group of people under a single umbrella policy. In the event something were to happen to the individual covered under this policy; then the sum assured will be paid out to the other beneficiaries. This benefit will be available for the pre-determined term offered as coverage. It is very common for corporates to offer group-term life insurance to their employees. In this article, we will get to know about the important aspects of Group Term Life Insurance.
Mechanism of group life term insurance :
Group insurance schemes are single umbrella or master contracts under which multiple people are covered under a single policy. Thus, the risk profile of the individuals covered does not matter under this contractual relationship. This policy is between the policyholder, in this case, the employer, and the insurance company. Hence, the employer chooses the sum assured and term as per preference. However, the premium can be paid by the employer or employee and is considered as a deduction; the one who pays the premium can avail of the tax benefit.
There is no requirement for individual underwriting as the group can choose to add new members or remove old ones even during the policy year. The risk pool is diverse and hence, the premiums are lower in the case of group-term insurance policies.
Additional Read: Group Term Insurance: Has the landscape changed post-covid 19?
The necessity of a group insurance policy:
A life insurance policy in general is essential if you have financial dependents. This way in the event of your eventuality, you will be able to enable your family to not stress over the finances. It may your way of ensuring the fulfillment of your family’s dreams even in your absence.
However, coverage in a group insurance policy can cease once you leave the group or the organization. This could happen if you resign or the company terminates you. Hence, it may be important to avail a group term insurance cover alongside an individual life insurance cover which will offer the required hedge against life risk even during the transitionary period, especially if you have a reasonably unstable or unsteady job. It is important to note that the premiums of group cover are significantly lower than that of individual life insurance coverage.
Eligibility for group insurance life policies:
The following sections individuals can avail of a Group Life Insurance Plan:
- Employer-employee groups
- Professional groups
- Non-banking financial corporations
- Banks
- Micro-finance institutions
Types of group insurance policies:
There are many types of group insurance policies. Some of the most common and popular ones are as mentioned below –
Uniform coverage:
Employers avail of this type of plan when he intends to treat all the employees at the same level. A typical example would be a factory, where the employer does not discriminate between the workers. Thus, the coverage amounts and the premium is uniform for all the members under the master plan.
Coverage based on grades of members:
Many corporates tend to use this mechanism, as a means to show their employees the level of importance they carry in the organization. In this method, the coverage amount will vary based on the level of the employee in the hierarchy of the organization. A person at the executive director level will enjoy a higher cover than a person in a clerical post in the organization. The premiums will also vary based on the coverage amount.
Cover for specific debts:
Group insurance plans can cover various types of debt. For example, a group of doctors may choose to buy an apartment within the same building and may come together to hedge the risk by availing of a term cover to the extent of the loan borrowed. These types of term cover are aligned to the debt and cease to exist after the debt has been paid completely. The term cover can be for a home loan, car loan, etc.
Riders for specific risks:
There are additional benefits that can be availed along with the basic life insurance coverage called riders such as critical illness riders, accident benefits, disability benefits, etc. The group of people who intend to avail of any specific cover may come together as a group to avail of the benefit under the same master cover.
For example, a group of sales personnel in an organization may avail of a group insurance life cover clubbed with accident benefits.
Features of Group life insurance policy:
Group life insurance policies are largely similar to the regular life insurance policy – a basic plan. The key nature or characteristics of the group policy are:
Minimal conditions:
The insurance is extended to all the members in the group subject to satisfaction of basic conditions such as the age of entry, age at maturity, etc.
No requirement for medical records:
One of the key requirements for an individual life insurance policy is the submission of medical records. However, in group-term insurance policies there is no need to submit a medical report. A self-declaration is however mandatory.
The scheme covers death:
If the employee dies during the employment tenure, the beneficiary would receive the entire death benefit under the group life insurance plan.
No maturity benefit:
There are many variants within the term insurance plan that an individual may avail of, there are plans which offer a return of premium as a maturity benefit. These types of variants are typically not available in the group-term insurance plans.
Benefits of Group term insurance policy to employers:
- Some plans offer employers the benefit of both life insurance coverage and the ability to fund gratuity strategically.
- Keeps the morale of the employees high and elevates productivity.
- Enables employees to stay focussed on their job without having to worry about the perils the family may face in the event of their eventuality.
Benefits of group term insurance policy to employees:
- Assurance to the employees that their families will be able to meet their dreams despite their absence.
- Lower premiums as compared to individual term insurance coverage for the same amount.
- If the employer pays the premium for the group plan, it is not treated as perquisite.
- There are no specific requirements for any medical tests. The coverage is available without any complications.
- Death benefit received by the beneficiary is exempt from taxes under section 10(10D).
- The human resource staff in the organization usually takes care of the minimal documentation and simple procedure for enrollment in a group insurance plan.
- Customizable to meet the specific needs of the employees for a specific organization.
- Safeguards the financial dreams of the insured.
The basic requirement of group term insurance plans:
- The minimum age of entry into a group term insurance plan is 18 years.
- The maximum age to enroll in a group insurance plan is 69 years.
- The maximum age at the expiry of the policy is 70 years.
- The minimum term of the group term insurance policy is 1 year.
- The minimum sum assured under the group insurance policy is Rs. 1000.
- The minimum size of the group is 50 members
Additional Read: Why premium is lower in Group Term Life policy than in Individual Term Life?
Conclusion:
Group term insurance is an easy and cheap means to hedge your life risk, it is ideal as compared to availing an individual term insurance policy since it offers the same coverage at a lower premium. Even the minimal documentation and no medical test requirement make it all the more attractive.
Thus, for the employer, it could help build a strong connection with the employees and keep them in good spirits. So, it is important to know about and choose your group term life insurance policy effectively after evaluating all available policies in the market. You can visit SecureNow to compare the features of the various group life insurance policy and choose one that aligns best with your requirement.
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About The Author
Varun
MBA Finance
Varun has established itself as a knowledgeable and reliable expert in the field with 8 years of experience. Specializing in group-term life insurance, they have dedicated their career to helping businesses and individuals navigate the complexities of insurance products and services. Currently writing for SecureNow, he produces insightful blogs and articles that demystify group-term life insurance, offering practical advice, industry updates, and strategic insights. Their deep understanding of the insurance landscape and talent for clear and engaging communication make their content invaluable for both seasoned professionals and newcomers alike.
