Group Term Life Insurance

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A Group term policy is purchased by an organisation, to cover a minimum number (group) of employees. The very nature of this 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 an equal insurance cover is provided to the group members under the master policy. This gives the employer clear benefit 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 organisation functioning like the salary of the employees, new employee’s added during the term, the age of the employees, exit of group members, are some factors which affect premium amount.

We quickly summarize the key points which are expected to affect your premium value.

1. The employer has the flexibility to add more employees

Suppose an organisation 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 joinees), and it can be same (if an equal number of members leave the organisation. In addition to this, the cost will rise, as other factors like age and salary of employees will also be considered 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 an 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

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 is expected to get affected. Higher the number of group members or young employees, greater is the chance of an early claim.

Click Here to know what is covered in a Term Insurance Policy

Case study

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 few leaves, which he is entitled to get, he has no absentee record. Jatin has a family history of heart diseases. 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 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’s (specified nominee). Group term also includes global coverage. The premium value of the group term policy is expected to rise, as the insurance service provider will account for the current working condition of BricksIT and the claim cost.

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