A group term life policy is purchased by an organization, to cover a minimum number (group) of employees. The very nature of the group term life policy affects the premium amount. An employer usually chooses to cover all insured members under the same risk and therefore, pays a lump-sum premium to the insurance company. It means equal insurance cover is provided to the group members under the master policy. This gives the employer clear benefits of economies of scale and is more affordable than buying an individual policy.
There are many circumstances and conditions, which can affect the premium amount. It is a long-term investment, where the benefit is against any unfortunate incident or mishap happening in the life of an employee. The risk value is high, as there is no individual medical test done before purchasing the policy. Other factors attached to an organization’s functioning like the salary of the employees, new employees added during the term, the age of the employees, and the exit of group members. We quickly summarize the key points expected to affect your premium value.
Some factors that affect the premium amount of group term are-
1. The employer has the flexibility to add more employees
Suppose an organization has 150 employees. Now suppose, the employer recruits 5 new people within one year, this will affect the premium value.
If the same pattern continues for 3 years, then the employer should expect a considerable difference in premium amount. It can be more (if there are new joiners), and it can be the same (if an equal number of members leave the organization. In addition to this, the cost will rise, as other factors like age and salary of employees will also consider at the time of renewal of the policy.
2. Benefit to add supplement coverage
An employer has the ultimate authority to fix the insurance coverage, and therefore, work out the premium value. There is an added provision of supplement coverage under the group term insurance plan. An employee has the benefit to purchase add-on coverage, like personal accident, etc. This, of course, is subject to a limit on an employee’s salary. Even though the cost is being borne by the employee, any claim will affect the premium amount of the group insurance.
3. Nature of risk covered
A Group term life insurance plan is provided for long-term risks like death, disability, etc. In the case of an unfortunate incident like the untimely demise of an employee, the premium value expects to affect. The higher the number of group members or young employees, the greater the chance of an early claim.
Click Here to know what is covered in a Term Insurance Policy
Case study: Premium of group term
A large software company, BricksIT, has recently purchased a group term cover for its 300 employees working across the country.
Jatin is a 37-year-old employee working at BricksIT for the past 8 years. His employment record is good. Except for a few leaves, entitled to get, he has no absentee record. Jatin has a family history of heart disease. However, this factor was not (individually) taken into consideration at the time of registering for the group term policy.
Jatin has been working long hours for the last few months. His job also involves putting in night hours during the same time. Jatin suffers from a heart attack, during his trip to the US office and passes away. BricksIT is liable to pay the compensation amount to Jatin (specified nominee). Group term also includes global coverage. The premium value of the group term policy may expect to rise, as the insurance service provider will account for the current working condition of BricksIT and the claim cost.
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.
