What is Group Term Life Insurance?

Employers, organisations, and banks have now extended a hand of care and security by providing a group term insurance cover for their employees or customers. It gives the employees’, i.e., your family financial compensation when you are no longer around to provide for them. Imagine you are an employee in an organisation. What do you think makes you stay with the company for a longer tenure? Reasonable compensation and job security would keep you happy only for the short term, but when it comes to longevity, your welfare, your family welfare and well-being is what really matters. A group-term insurance policy is the most economical and comprehensive way of providing risk coverage to multiple members of a group and assuring them of their welfare. What is group-term life insurance, and how does it benefit you and your family? Does it differ from an individual term life cover? In this article, we discuss the plan, its benefits, drawbacks, and so much more. Let’s dive right in!

What is Group Term Life Insurance?

In a group term insurance plan, the insurer provides insurance coverage for all the group members under one single policy. Suppose you pass away during the policy term; your family will receive a fixed sum as a death benefit. They can use the claim amount to manage their future financial needs.
Let us know more about how a group term insurance plan works.

How does Group Term Insurance Work?

Group term insurance is managed by the group administrator, who is the employer, organisation, bank, association, etc. The insurance company issues the policy in the name of the group administrator, who pays the premiums and provides coverage to all its group members. The policy can be provided as such:
➔ By the employer to its employees
➔ By the association/ club to its members
➔ By banks to their account holders
➔ By professional groups/ NGOs/ Finance institutions to their members, etc.

Now, let us have better clarity on who is eligible to be covered under the policy.

Eligibility Criteria for a Group Term Insurance

To be covered under group term insurance, you will have to meet a few eligibility requirements set out by the insurer. They are:

1️⃣Pre-requisites The first and foremost requirement is to be an eligible group member. The group must share a common affinity and not be solely formed to buy term insurance. There might be other prerequisites laid down by the insurer. If you want to be covered under the group plan, you and other members of the group will need to meet these conditions.

2️⃣Group size The next factor is the group size. Depending on the type of group, the minimum size requirement varies. ➔ An informal group must have at least 50 members, like a residential society
group, a group of club members, etc. ➔ A formal group must have at least 10 members, like the members or employees of an organisation, company, etc.
Note: The premiums payable depends on the size of the group covered. Ideally, the more members in a group, the lower the premiums will be.

3️⃣Age restrictions The entry age to get coverage under the group term insurance is 18 years. Depending on the insurer, the maximum entry age can range from 65 to 85 years or more. Let us know the different types of group term insurance plans that you can purchase for your family.

Varieties of Group Term Insurance Plans

The varieties of group term insurance plans can be classified based on the coverage offered to the members. They are:
👉Uniform Cover
Here, a uniform or flat cover is offered to all the group members. For instance, a bank offering a group term insurance cover of Rs. 60 Lakhs to all account holders regardless of age.
👉 Different/Varied Cover
Here, different members are entitled to different coverage. For example, an employer offering group term insurance may classify employees based on their professional ranking, and salary earned. A higher grade means higher coverage. Let’s take for example that Nisha is a manager at a corporate company receiving a salary of Rs. 6 lakhs per annum. Disha has recently joined her team with an annual salary of Rs. 3 lakhs per annum. As Nisha’s salary is higher than that of Disha, Nisha will get higher coverage under the group term life insurance policy.
👉Policies with Riders
Depending on the group administrator and the insurer, your group term insurance plan may also provide additional rider benefits . These riders or add-ons will provide extended coverage during specific circumstances. A few examples of riders are critical illness riders, accidental death benefit riders, accidental disability riders, waiver of premium riders, etc.
Let us now have a better understanding of the benefits of a Group Term Insurance policy.

What are the Benefits of Group Term Life Insurance?

Listed below are the benefits that are enjoyed by the group administrators and the group members (including yourself).
👉For the Group Members
➔Affordable premiums in comparison to individua term life insurance policy.
➔Easy documentation without tedious paperwork.
➔Does not require pre-policy medical tests
➔Tax benefits¹ under Section 80C of the Income Tax Act of 1961, if you pay a part or whole of the premiums. Also, the claim amount your family will receive (if you pass away during the policy tenure) will be exempt from taxation under Section 10(10D) of the Act.

👉For the Group Administrator
➔It is a cost-effective way of providing insurance coverage to the group members, as multiple people are covered under one single policy.
➔Simple and hassle-free procedures to add or remove members to the policy at any time of the year.
➔If the policy is offered by the employer to its employees, it acts as a good method of employee retention.
➔The group administrator can avail of tax benefits¹ on group term insurance premiums.
Now that we know the benefits offered by the policy, let us know about a few of its drawbacks.

What are the Drawbacks of a Group Term Insurance?

Before purchasing a group term insurance plan, here are a few essential things you should know.
👎Restrictions on Control
As you are just a group member and all negotiations take place between the group administrator and insurer, you have limited or no control over the policy terms and customizations. When compared to individual term insurance, the flexibility to customise your plan to suit your family’s needs is limited. And it is up to your group administrator, whether he chooses to add riders and other features to the policy.
👎Inadequate Sum Assured
Your group administrator might buy a policy that fits their budget rather than ensuring that it is adequate for each member. This might leave your family with insufficient amount in their hands - in case of unfortunate event when you pass away while the plan is active.
👎No membership – No coverage
The basic requirement of being covered under the plan is to be an eligible member of the group. This means that when you leave the group - quit your job or close your bank account, etc. the term life cover will stop.

To Conclude,

Any insurance plan that you buy must suit your needs and financial goals. We hope that you weigh your needs and requirements to arrive at the best plan for your family that is financially sound and comprehensive.