The premium for the group term policy is dependent on various factors, like the number of people insured in the group, the average sum insured per person, the average age of the group members, the occupational risk of the group, etc.
Insurance premium consists of three components:
- Risk Premium
- Loading for Office Expenses
- Investment Component
The premium for the group term policy can be 20 – 30% lower when compared to a similar amount of insurance cover bought individually for every group member. It is because of the following reasons (considering Group Term Policy):
- The risk premium is lower as it is spread over a large homogeneous (involved in similar occupational activity) group
- Office expense loading is lower since there will be only one policy
- Since the term plan will not have any investment component ruled, out for both individual as well as group premiums
A Case on Lower Group Insurance Premiums
Mr. Rakesh works at a reputed multinational company in Bangalore and is entitled to many benefit schemes from the employer including a term life cover of Rs. 1cr.
Considering his growing family (just became the father of a daughter, and his second child) Rakesh has decided to buy a private term insurance plan for himself as advised by many professional financial planners and advisors.
The quotes he has received from insurers are all significantly high for the same amount available from his employer. He expected the premiums to be equivalent if not the same, but here the new premium quote is more than 30% higher than his employer’s benefit.
Rameshwar Prasad, his advisor, revealed the details to him about the premiums. He also suggested that apart from other factors, perhaps the employer is also enjoying a few claim-free years. And thus, the premium discount with no-claim bonuses. But the individual policy will be expensive due to the higher risk premium.
For his age and occupational profile, Rakesh has received quotes of approximately Rs. 14,000 for the individual insurance policy while he pays just about Rs. 8000 for the group term life insurance available with the employer.
Click here to know what are the advantages of Group Term Life Insurance policies
