Thrilled to have landed that coveted job, you walk to your desk on the first day. Along with other papers from HR sits a letter saying you have been enrolled in a group insurance scheme. You wonder what that is and how it benefits you.
What is a Group Life Insurance policy?
Group life insurance plans are a type of insurance in which a single contract covers an entire group of people. Typically, the policy owner is an employer or an entity such as a labor organization, and the policy covers the employees or members of the group. Group insurance scheme is often provided as part of a complete employee benefit package. In most cases, the cost of group coverage is far less than what the employees or members would pay for a similar amount of individual protection. So if you are offered insurance through your employer or another group, you should usually take it, especially if you have no other life insurance or if your personal coverage is inadequate.
Group life insurance policy remains in force until your employment is terminated or until the specific term of coverage ends. You may have the option of converting your group insurance policy to an individual policy if you leave your employer.
Salient features of Group Life Insurance plans
Group life insurance plans have the following unique features –
1. A single policy is issued in the name of the group which is called the Master Policy. This Master Policy includes the names of all group members and provides coverage to all.
2. A minimum number of members are required to buy insurance plans. Usually, this number is 25 but different plans might have a different minimum requirement of members.
3. The group insurance policy is issued for one year after which it can be renewed for continued coverage.
4. The sum assured is calculated based on the age of the members or their annual incomes or their level in a hierarchy.
5. The premium can be paid by the group, its members or partially by the group and partially by the members.
6. No medical underwriting is usually done for each member of the group. The insurance company underwrites the whole group as one based on the group’s composition and nature.
7. Every member who is a part of the group gets covered under the group insurance scheme.
8. The premium, sum assured and the number of members covered might change on renewal of the policy. This happens because, after a year, the number of members might have changed. Moreover, the age of the members also increases by one year and so the coverage has to be revised.
Advantages of Group Life Insurance policies
Group life insurance schemes provide various benefits to both the group and the group members. The benefits include the following –
1. Group members can avail free insurance coverage if the group is paying premiums for the life insurance policy.
2. The premiums of group life insurance plans are very low and affordable. In fact, the premiums prove to be lower than individual insurance plans making it easier to avail group life insurance.
3. Since no medical underwriting is done separately for members of the group, coverage can be availed by members who are old or are otherwise unable to avail independent life insurance coverage for themselves.
4. A group insurance scheme boosts morale among employees when their employer invests in an insurance plan on their lives. Employers can, therefore, benefit from increased morale and better employee retention.
5. Group life insurance plans provide a lump sum benefit to the nominee of the covered member if the member dies during the policy tenure. This benefit helps the nominee deal with the financial loss suffered on the member’s death.
6. life insurance plans also offer tax benefits. The employer can claim the premium paid as an admissible business expense under Section 37. If the employees are contributing towards their insurance premiums, the same can be claimed as a deduction under Section 80C up to INR 1.5 lakhs. Moreover, the death benefit received is also tax-free in the hands of the nominees.
7. Every member joining the group gets the coverage of the life insurance policy by virtue of his/her membership
8. The coverage under a group insurance scheme is available worldwide.
What is not covered in a Group Life Insurance policy?
A insurance scheme covers a large number of benefits as already seen, but there are scenarios where the insurance fails to provide cover. Here are some such cases.
1. The insurance is an affordable way to get coverage if you have low income and you’re not able to invest in personal life coverage. But, in case you’re hoping that it would be enough, you’re mistaken. The group insurance plans are not much and may not be enough to spend a comfortable retirement.
2. Most people tend to change jobs several times till they reach the age of retirement. This will keep changing your coverage plan and there is a high possibility that your next job may not cover the group life insurance policy. So, it is not a very efficient method of investment.
3. The employer is in charge and the sole controller of the group insurance policy. The life insurance offered by the company may not be enough or might not cater to your needs. Your expectations from the policy solely depend on you and you’ll have to get insured separately.