Group Term Insurance
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Group Term Insurance

A group term insurance plan is specifically designed to offer insurance coverage to a large group of people under a single policy. Like other insurances, group term life insurance offers accidental death benefits and various other multifarious benefits from uniform to ranked covers.

Usually, the employer of an organization or the head of a group is the policyholder, and the company offers the plan at no cost or a small amount is deducted as per the policy. The plan may also allow the employees to purchase additional coverage for their children and spouses.

Who are Eligible For Group Term Insurance?

Group term insurance plan is eligible for the following categories of people:

  • Bank sector
  • Microfinance institutions
  • Employer-employee group
  • Non-employer and employee group
  • Acknowledged & professional groups
  • Financial institutions pertaining to non-banking sectors

How Does A Group Insurance Plan Work?

A group term insurance plan is substantially a single administrator contract. Therefore, no matter how many employees or group members are covered under the scheme, the policyholder (the employer or the group head) will have a contractual relationship with the insurance company. He or she will be the one who will decide the amount of sum assured and no individual underwriting is required. Moreover, if the group wishes to add a new member to the plan, it can do so at any point in time.

Following is the chronology of how a group life insurance plan works:

  1. Purchasing Of Policy: A master policy is issued to the administrator (employer or head of a group).

  2. Paying Premium Amount: Upon issuing, the policyholder pays an initial premium amount that covers all the members for one year.

  3. Assessment: Based on the group’s nature and compositions, the insurance company determines the sum assured for each member. Alternatively, the insurance company can also give some options of sum assured.

  4. Choosing Sum Assured Options: Members of the group can be provided with a range of sum assured options to choose from. The sum assured can be linked to the salary account, loan account, or it can be a lump sum amount.

  5. Acceptance Of The Policy: When all the group members accept the proposals of the insurance company, further processes start taking place.

  6. Issuance Of The Policy: As the master pays the premium payment, all the members under the plan are covered for the time period of one year from the date of the policy’s convocation in the organization or a group.

  7. Renewing The Plan: When the group term insurance plan expires, the master can renew it on an annual basis.

  8. Amendment Charges: The premium amount is charged based on any amendment in the size as well as the age allocation of the group members.

What are the General Features of a Group Term Insurance?

  • Contribute – Yes or No?
    A group term insurance can be generally divided into two plans:
    • Contributory Plan: In this plan, the group members contribute to the insurance policy by paying a nominal amount of the premium payment. The rest of the payment is done by the master itself. This helps in mitigating the financial burden on the employees.
    • Non-Contributory Plan: In a non-contributory plan, the premium payment is paid completely by the master itself.

  • All Members Under One Roof
    A group term insurance is fundamentally a master contract purchased by an employer or a group head from an insurance company. Under a single insurance policy, all the members are covered automatically.Furthermore, the premium payment is directly proportional to the number of members and the coverage amount.  Therefore, if the number of members increases, the premium will also increase accordingly. Similarly, if the group witnesses a drop in the number of individuals, the excess premium will be restored by the insurance company.

  • What are the Minimum Members Required?
    In order to buy a group life insurance plan, a minimum number of group members are required. Generally speaking, the number is 50 or at least 75% of the total members. However, this number is not the same with every insurance provider.

  • A Policy That Lets You Modify
    At any point in time, the insured can be added or removed from the policy by the policyholder or the applicant. Besides, this feature comes without any limitations for changing the status or any other strict formalities to do the same.

  • Enjoy Death Benefits With The Assured Money
    The concept of sum assured applies to all the group members and it is a pre-determined benefit decided while buying the policy.The sum assured in a group term insurance is calculated on the basis of the annual incomes and age of the group members. The premium must be paid against this calculated sum assured value. In case of the sudden demise of the insured person, the sum assured will be assigned to the nominee as a death benefit.

  • Do You Want Extra Protection? – Go For Riders
    There are two types of riders that are prominently available in a group term insurance plan. They are:
    1. Critical Illness Rider: It covers the critical illnesses and pays the coverage amount to the insured person; in case he/she suffers from any of such illnesses.
    2. Accidental Death & Disablement Rider: It covers the additional sum assured in case there is an accidental death or disablement of the insured person.

  • No Need Of Medical Tests
    As all the members are covered under a collective health scheme, no member has to undergo any medical test or no medical underwriting will be done for each individual of the group. The insurance company will account for the whole group’s health and will underwrite it as one.

  • TwoAttractive Insurance Options
    The group term insurance offers two attractive insurance options. The policyholder can choose any one of them as per his/her needs and expectations. They are as follows:
    1. Group Term Life Coverage: The master can renew this policy on annual basis. There is no need of providing evidence to the insurance company for availing the policy.
      Besides facilitating a straightforward process, this scheme also allows employers to get tax deductions.
    2. Group Permanent Life Coverage: It provides lifetime coverage for each member of the group. This type of life coverage is rarely common in companies or organizations, and it has further divisions and clauses for the insured person.

Why Do We Need A Group Term Insurance Plan?

A group life insurance scheme becomes pivotal for various companies or groups of individuals due to the following benefits it provides to both the employers as well as the employees:

  • Default Coverage
    Once you are a part of the group, you are by default covered under the group term insurance policy. For those members or employees who do not have any personal life insurance plan, this feature assists them to get essential coverages.
    Some of the companies allow their employees to choose an individual plan along with a group insurance plan. Therefore, when an employee leaves the organization, his/her group policy will terminate but individual policy will persist.

  • How Does The Plan Save On Taxes?
    Group term insurance policy offers a distinct advantage of tax deductions for both the employees as well as the employers.
    • For Employers: Under section 36 of the Income Tax Act, 1961, all the payments made to the insurer are treated as management expenses.
      In addition, whatever yield is gained due to the contribution is not subjected to taxation under section 10 of the same act.

    • For Employees: Under Section 10 (10 D), death benefits are not subjected to tax deductions.
      In case the employees are partaking in the premium payment, the same is claimed as a tax deduction up to INR 1.5 lakhs under Section 80C.

  • Pay Easily
    As per the preferences and needs, the insurers can choose the mode of premium payments efficiently. The insurance company collects premium payments from the policyholder either through a single payment method or payroll deductions. Therefore, the mode of payment is very easy and convenient for the group.

  • Different Customization Options

    Enrolled members can leverage the benefits of tailoring the policy to suit their niche needs and preferences. 

    The coverage can be extended with certain add-ons, such as education allowance, repatriation allowance, etc. Thus, the group members can enjoy a plethora of benefits in addition to the base coverage.

  • How Does The Plan Provide A Wider Coverage?

    Such policies cover a wide group of people and work as a master contract policy. Under a group insurance plan, members’ benefits are further extended to their family members in case of unfortunate events. 

    In addition, the insured person receives a wide range of benefits, such as death benefits, accidental benefits, disability benefits, critical illness coverage, and other enhanced coverage at a nominal additional cost.

  • Premium Rates That Do Not Break Your Bank

    The premium rates of a group term insurance plan are quite nominal as compared to individual insurance plans, making it manageable to avail various perks of group insurance. Only a small percentage of the employee’s salary is deducted in case one chooses for the contributory plan. Thus, the group members need not bend over backwards to pay for the premium. 

  • Saves Your Pocket

    Besides nominal premium rates, the major attractions of a group term insurance plan are

    • Lower commissions
    • Lower acquisition, operation, and renewal expenses
    • Single contract (no need to go for individual underwriting or to spend extra money for issuing individual policies)
    • Simple requirements of data or information (for example, no need for seriatim valuation and no cash values for each employee)

    The major force behind the above-mentioned benefits is the fact that a large number of insured are covered under a single policy, which results in the concurrence of various kinds of expenses. 

  • When Will You Enjoy Gratuity Benefits?
    Once you complete a certain number of years as a member of a group or in an organization, you will receive gratuity benefits. After subscribing to the group insurance plan, individuals are allowed to accumulate their funds in a systematic manner. Thus, the policyholder can be aided with a future liability towards their group members along with offering life insurance coverage.

  • Protects You From Loan Liability
    If an insured person fails to repay a loan on account of his/her death, inability, or disability, the organization suffers a significant amount of loss. In such a situation of incomplete loan liability, a group insurance plan provides an option for the ‘Group Credit Protection Plan’ that is specifically designed to protect the organizational interest. 

  • Boosts Productivity
    As the group life insurance ensures financial security and benefits to each employee or group member, it inevitably boosts up the morale among them. This leads to better employee retention and increased productivity in the organization.

What To Consider Before Selecting A Group Term Insurance Plan?

  • Are You Eligible?

    Once the members meet the eligibility criteria, they are automatically enrolled for the base coverage. However, masters should check the eligibility requirements before enrolling all the individuals for a group plan. In some cases, the requirements might incorporate a certain number of working hours per week; while in other cases, it is limited to a specific length of time for which an individual has been an employee in an organization. 

    For basic coverage, most of the group insurance plans do not require the group members to go through underwriting because it automatically covers all the employees regardless of their health status. However, for additional coverages, the members may go through some qualifying events. For example, in supplemental coverage, a simplified underwriting process is carried out in which the employees are required to answer some questions in order to determine their eligibility status. The insurance company then chooses whether or not to provide supplemental coverage.

  • How Much Is The Sum Assured?
    The policyholder should consider whether or not the amount of sum assured is enough for the group members. An adequate amount will assist individuals as well as their family members to deal with tough times. It comes with an assurance of the pre-determined financial benefits and protection, in case of any sudden mishaps of the insured person, such as untimely demise, accident, or disability.

  • Are You Compromising With Features?

    To make sure that your members do not have to compromise with any essential feature of a group term insurance plan, the master should look out for the premiums clubbed with quality features. The rates may go high as the individual’s age goes up. For instance, the premium rates automatically increase at ages 30, 35, 40, 45, etc. 

    However, the premium rates are generally inexpensive for younger employees. Even if an employer is looking for a low premium option, he/she should consider whether or not all the necessary features are intact.

  • What Is The Amount Of Coverage?

    A certain amount of coverage is offered free of charge to the members. In case one wishes to buy any additional coverage, he/she needs to pay for the same depending on the age. 

    The most pivotal aspect is to consider the diversity in the coverages offered by a group plan. It may differ among a number of employees depending on where they are exactly positioned in the organizational hierarchy. For managers and highly-paid members, the plan may be robust, such as they might be eligible for both group policy and individual policy.While for lower-level employees, the plan may include base salary coverage, bonuses, incentives, reimbursement, etc., and maybe excluded from compensatory benefits. 

    Policyholders should embrace such diverse coverage plans because it ensures tailored benefits and maintains a kind of equity among group members.

  • To What Extent Is The Coverage?

    Whether or not the plan will cover the employee’s family member, what add-ons can be done, and to what time period the plan can be extended – all such factors should be considered important to determine the extent of coverage. A comprehensive group term insurance plan leads to a multitude of positive results, such as better brand positioning.

    In case your organization is financially strong, you should consider covering the family members under the plan.  In addition to providing basic coverage like death benefits, you should make the plan more beneficial by allowing individuals to choose from add-ons, such as critical illness rider, chronic illness benefits, accidental death benefits, disability benefits, repatriation allowance, and education allowance. 

    Since the group plan is limited to the ongoing employment period, all the coverage of an employee automatically terminates once he/she leaves the organization. To overcome this problem, the employer should take into account the inclusion of individual plans so that the ex-employees can continue leveraging the benefits of the life insurance policy.

  • What Will Be The Taxation Benefits?

    Masters should provide a group term insurance coverage with taxable benefits, as per the Income Tax Act, 1961. The taxable amount must be calculated based on the employee’s age and must be subjected to medicare taxes as well as social security. 

    In case the employer differentiates in the taxable amounts among the employees, a certain portion of the coverage amount should be offered as a taxable benefit. For example, as per IRS Code Section 79, the first $50,000 of the coverage amount becomes a taxable benefit for the employees.

What Is The Claim Process?

In case of the sudden death of a group member, the nominee can get the sum assured by following the below-mentioned steps:

  1. Informing Insurance Company: The nominee has to inform the company about the death within 24 hours or as early as possible.
  1. Submitting Essential Documents: After informing, the nominee has to submit all the necessary documents, such as insurance copy, original death certificate, etc. to the insurance company.
  1. Assessment Of Details: The insurance company will assess the details and information on the basis of documents submitted.
  1. Settlement Of Claims: After the documents are approved, the claim is settled accordingly. The group life insurance policy will pay the sum assured of the group member to his/her nominee. For the remaining members of the group, the policy will remain untouched.

Documents Required

Following documents are required for a seamless claim settlement:

  • Duly filled-in claim form
  • Certificate of insurance
  • Death certificate
  • Identity, address proof of the nominee of the insured
  • Hospital certificate
  • FIR (In case of an accident)

FAQs

Anyone who is above 18 years of age and is an active or full-time member of an organization or a group can go for the group term insurance plan. Moreover, there are certain groups of people who are only eligible for the plan. They are:

  • Banks
  • Microfinance institutions
  • Employer-employee
  • Non-employer and employee group
  • Acknowledged & professional groups
  • Financial institutions pertaining to non-banking sectors

One of the biggest advantages of a group term insuranceplan is that it is available worldwide. No matter whether the insured person diesin or outsidehis/hercountry, the policy would cover all the death benefits.

Although the minimum entry age for a member is 18 years, the maximum entry age varies from scheme to scheme. Some allow members of 65 years to enroll in the plan, while others may have a maximum entry age of even80 years.

Generally, there is no need for a medical check-up before buying such a plan.

The tenure of a group term insurance plan is for one year. After that, the policyholder can apply for renewal.

At the moment of renewal of the policy, some of your employees might turn 30, 35, or 40. This certainly raises the premium costs as they come under the adult section. Some new members might add to your organization, which will require an additional prorated premium amount. Moreover, in case any rider is selected by the employee, the insurance company provides favorable discounts while renewing the plan.

Yes. As the group term insurance plan provides automatic coverage to the newly added member, there is no need to buy a separate policy for the members joining midway.

Yes. As the group term insurance plan provides automatic coverage to the newly added member, there is no need to buy a separate policy for the members joining midway.
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