Group Term Life Insurance

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The employer can choose different benefit calculations to determine the amount of coverage for the employees under a group life insurance policy. In general, for group insurance contracts, the employer assigns employees to different classes and schedules of benefits. These classes determine the amount of coverage that will be provided to the employee.

Here are the various types of benefits schedules that are generally used:

  • Earnings Schedule: In this method, the firm distributes the employees to different classes based on their salaries (excluding the bonus). Organisations most commonly use this method to determine the coverage for group life insurance policies. They determine the amount by a percentage or the multiple of annual salary which is, most of the time, equal to the one time of annual income. Hence, higher multiples can be provided to the executive class.
  • Flat Benefit Schedule: In this method, no importance is given to the position and the salary of the employee. To sum up, the management considers all the staff equal and groups them under one class so that all of them receive the same benefits. 
  • The Length of Service Schedule: Very few companies use this schedule to determine group insurance benefits. In this category, they calculate the benefits by grouping the employees based on the number of years’ employee has been working with the company.
  • Combination Schedule: The firm can use a mix of two of the schedule. They can use the earning schedule to determine the benefits of the most valuable employees of the company. Whereas for the employees working on an hourly basis, they can employ the flat basis method.

Click here to know what is covered under the group life insurance policy

Case on Group Life Cover Decision

ABS Pvt. Ltd. is a manufacturing industry, where there are two types of employees. One is those who work in the factory on the hourly payroll. These workers receive the payroll based on the number of hours worked in a month. The other staff takes care of all the marketing, accounting, sales, research, and other operations of the company. The company paid the full-time employees fixed salaries and incentives.

The management of ABS Pvt. Ltd. is planning to buy a suitable group life insurance cover for all their employees irrespective of being full time or not.

So, to determine how much coverage they should buy, they divided their employees into two groups:

  1. the permanent employees (that includes those who are responsible for operations)
  2. the temporary employees (those who are responsible for working in the factory).

They divided permanent employees into three classes, i.e. senior, middle level, and entry-level based upon position. They assigned multiplier one to the entry class, two to the middle level and three to the senior class. Therefore, the management applied this multiplier to their average salary in each class to determine the coverage.

Whereas in the case of temporary employees, they used a flat rate basis. The company gave the same benefit given to the employees of the whole group irrespective of the number of hours worked.

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