The premiums for the group term policies are dependent on various factors, like number of people insured in the group, the average sum insured per person, average age of the group members, occupational risk of the group, etc.

Insurance premium consist 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 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 term plan will not have any investment component that can be 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 father of a daughter, 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 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 is discounted with no-claim bonuses. But individual policy will be expensive due to higher risk premium.

For his age and occupational profile Rakesh has received quotes of approximately Rs. 14,000 for the individual policy while he pays just about Rs. 8000 for the group term life available with the employer.

Click here to know what are the advantages of Group Term Life Insurance policies

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