A company has a thousand employees, and it depends on this group of employees for revenue and profit. It wants to insure everyone in this group because fewer employees mean lower efficiency, less productivity, less revenue, and so on. The insurance product that fulfills this need is the group term insurance plan.
Group Term Insurance
Like an individual term plan, the group term plan is a death-benefit only plan. The employer takes the insurance on the group, i.e., the employer is the insured. But, the plan benefits the individuals in the group. If an employee on the group plan was to pass on, their nominee (typically the next of kin) is provided a lump sum that will provide for the least part of their lost income.
Who is Eligible for Group Insurance in India?
The general misconception is that group insurance is just an employer-employee thing. That is not the case. For instance, a bank might take term cover on all its loan customers. Credit card companies might do the same for all their corporate card customers at a particular company. A workers’ union might take group term cover for its members. Professional associations, such as those for engineers, doctors, or lawyers, could do the same for their members.
In short, this insurance product can be applied to any group of people whose interests and risks are relatively homogenous.
Different Ways Group Term Insurance Works
- If a company provides group term cover to its employees, the employees have to pay a part towards the plan’s premium. These are usually adjusted in the employees’ take-home pay.
- In the case of the bank or the credit card company, the credit card or loan customer has no interest in the term cover provided by the bank. In such cases, only the bank or the credit card company pays the premiums.
- You cannot form a group whose only task is to buy group life insurance as group life cover is much cheaper than the individual policy. So, if you have any bright ideas about a bunch of like-minded people banding to reduce life cover costs, think again. The insurers and regulators have covered that angle.
Benefits of Group Term Insurance
- Group term insurance premiums work out far lesser than their individual counterparts. Most insurers have term insurance premium calculators that can show you the difference between the two.
- Group term insurance is an attractive feature to employees as well as potential hires. The employee feels cared for.
- You can add additional covers to your group cover, such as critical illness, accidental death, disability covers, and so on. Your premium will increase accordingly, but it would still be significantly lower than any individual policy.
Features of Group Term Insurance
- Group term insurance plans allow members to be added to the group at any point during the insurance period.
- The group plan sets a predetermined sum of money to be paid to the group member’s nominee in case of the former’s demise.
- Group members need to be in the 18-60 age category. People below 18 in age or above 60 are not eligible for group term insurance cover.
- Group term insurance premiums vary year to year depending on the change in the size of the group. This is unlike individual term life plans, where the premium value is locked in when the policy is first issued.
How Group Term Insurance Works
- The employer/group head pays the initial premium to activate the group term policy. From this point, all members of the group are covered by the plan for one year.
- Group member contributions are taken periodically – monthly, quarterly, half-yearly, or annually.
Group term insurance is the cheapest viable life insurance product that ensures everyone in a group is covered. However, remember the group cover is available to you only as long as you are in that group. If you leave the group, your group term cover stops.
For instance, if you quit your job at a company that provides you group term cover, your cover has ceased. It is always viable to have an individual term life policy to ensure you are covered at all times. The group term cover can then act as an additional life cover. Further, make use of the term insurance premium calculator for estimation on your premium rates beforehand.