What is a Group Term Life Insurance Plan?
A group term life insurance plan refers to a life insurance plan that covers a group of people for a specified term or period in exchange for a fixed rate of premium payment. It provides life coverage to a group of people and pays compensation to the group member’s family if he/she dies during the policy term. The compensation amount is either paid to the family as a lump sum death payout or a monthly payout.
Group term insurance plans are mostly purchased by companies/businesses to provide life insurance coverage to their employees. When an employer purchases a group term life insurance policy for its workers as an incentive, the employer becomes the policyholder and the employee becomes the beneficiary. In the event of an employee's death, the plan provides financial independence to the employee's family by offering them a death payout.
Many employers provide a basic level of group term coverage at no additional expense to their employees. After all, a group term insurance plan is more affordable than buying individual term insurance for each employee. Moreover, they also give their employees the option to buy additional coverage as per their requirements and extend the coverage to the employees' spouses and children.
However, a community insurance scheme is not limited to only employer-employee groups but also includes bank clients, NGOs, professional organizations, non-banking financial institutions, and microfinance institutions.
Features of Group Term Life Insurance Plans
Employer-provided group term life insurance plans have become an important component of employee compensation packages. Many fraternal organizations provide community term life insurance to their members. Similarly, large and medium-sized businesses and corporations have a single master policy covering all of their employees. For those with financial responsibilities, term life insurance is a must-have product.
Employers cover all their workers under a group life insurance scheme, regardless of age, occupation, or social context. The following are some of the features of a group term life insurance plan:
- Death Payout- In case of a tragic event where an employee dies in an accident, the group life insurance awards the total guaranteed amount to the nominee selected by the deceased individual.
- Employee Cover by Default- The term insurance coverage is a perk that comes with the employee benefits package. If a person has been accepted into a business, he/she is automatically enrolled in the plan. Some businesses also allow their employees to purchase an additional individual plan along with the group policy that continues to operate even after the employee leaves the company.
- Premium Payment- The group life insurance plan's premium is paid by the employer. But in some cases, the employee is responsible for paying the premium and the amount is deducted directly from his/her pay.
- Seasoned Fund Managers- Professional fund managers manage the funds accrued under the group life insurance policy. The employer is provided with sufficient funds in the event of an emergency. Thus, fund managers manage superannuation, gratuity, and other payouts on behalf of the employer.
- Gratuity Benefit- All employees are entitled to gratuity benefits after working for a certain number of years for a single company. Group life insurance enables an employer to save money to provide gratuity payments to workers.
- Credit Protection- When an insured individual dies with unpaid loan debt, banks and lending agencies are often forced to lose significantly. Banks may use a group credit protection plan to protect themselves from a financial loss.
- Master Contract- The group life insurance policy coverage is automatically provided to all workers, regardless of whether they have insurance or not. It's a master contract in which an organization buys a master policy whose premium is determined by the number of members and the total assured amount selected by the corporation.
- Premium-The premium is directly proportionate to the number of group members. As the number of members grows, so does the premium rate, and vice versa. If the insurer collects any excess premium money, it will refund it to the organization.
- Contributory and Non-Contributory- There are two types of community life insurance: contributory and non-contributory. In the first case, the employee contributes to the scheme by paying a portion of the premium, while the employer covers the remainder. In the second case, the employer entirely pays the premium for the policy.
- Affordable- Group term life insurance is less costly than individual term life insurance plans. This is because the insurance provider will combine different costs, including management, maintenance, and renewal into a single master policy.
- Coverage:The amount of coverage provided under some group term life insurance plans depends on a member's place and rank in the organization. Benefits for the top management are significantly higher than those at the lower levels. Some small and medium-sized businesses, on the other hand, offer uniform, flat coverage to all their workers.
- Tenure:The policy typically has a one-year limit. After that, the policy must be renewed every year.
- Portability:Since policy coverage is linked to a person's current work, it immediately ends when he/she leaves that job. However, some insurers offer the employee the option to convert their group term insurance policy to an individual insurance policy in case of a change in employment. This portability option may lead to a higher premium.
Benefits of Group Term Life Insurance Plans
Group Term Life Insurance Plans are designed to provide life insurance to a group of individuals under a single scheme. In the case of an employee's death, a group term insurance policy provides financial support and freedom to the employee's beneficiaries. It provides various advantages, ranging from universal coverage for all to ranked coverage for different levels of members. Some community insurance plans also cover unpaid debts for a group of creditors, and others offer critical illness and injury coverage. Take a look at the various benefits of group term life insurance plans below:
Default Insurance Cover
The group term policy covers members of a community or group simply by being a part of the group. It provides basic coverage to all group members irrespective of whether they have a personal life insurance policy or not.
Employers benefit from the structured approach of accumulating funds for their potential gratuity liability to their workers. A group term insurance scheme makes this easier for employers and offers life insurance coverage to the workers.
Employers and contractors both profit from group term life insurance policies. Death benefits are tax-free according to Section 10(10D) of the Income Tax Act of 1961.
Customizable to Suit the Employee’s Needs
Add-on covers, such as tuition premiums, repatriation allowance, accidental death, and more, can be added to the group term insurance policies to offer a wide range of benefits to the employees in addition to the base cover.
No Medical Check-ups
Employees are relieved of the burden of undergoing medical examinations before getting enrolled under group term insurance plans.
A group plan's premium is much lower than that of individual plans because it covers many individuals.
What Are the Benefits of Group Term Life Insurance Schemes to Employers?
Employers profit from group term life insurance plans just as much as workers do. Here are some of the benefits of group term life insurance plans to employers:
- Group term life insurance plans make it simple for employers to fund their gratuity liability. Gratuity funds are strategically designed to cover future gratuity payments, alleviating the pressure on the employer.
- Returns on the funds are collected based on the success of the client-selected funds.
- Group term life insurance plans are more affordable than individual plans because running schemes on a group basis are less expensive.
- Funds that perform well will gain higher returns, which will reduce the employer's costs.
- Some plans provide both life and disability benefits to employees.
- Employers can also earn tax benefits on group term insurance premiums.
- In large companies, group term insurance plans also serve as a mechanism for employee retention as employees feel valued.
How Does a Group Term Life Insurance Plan Work?
A group term life insurance policy involves a group administrator paying an initial premium to obtain a master policy. This initial payment provides coverage to all the group's participants for one year. Members of the group have the choice of selecting the sum assured. This sum assured may be paid as a one-time payment or connected to a payroll or loan account. After the policyholder pays the fee, the group members are covered for a year from the policy's start date.
The community life insurance contracts are renewable on an annual basis. Moreover, The premium is calculated based on changes in the size of the group and the age distribution of the group in question.
Who is Eligible for Group Term Life Insurance?
Employee-employer classes, banks, non-banking financial companies, non-employer – employee groups, specialist groups, and microfinance institutions can buy community term life insurance plans for their working-class/ employees/ group members. The group term insurance eligibility criteria differ for each of these groups. Moreover, the size of the group may also vary from one insurance policy to another. Moreover, the minimum age to enter the plan is usually 18 years old and the maximum age limit ranges from 65 to 69 years.
Although some group term life plans provide uniform and basic coverage to all plan members, others provide supplemental and graded coverage depending on the skilled ranking or role of the plan members.
List of Group Term Life Insurance Plans in India
Some of the group term life insurance plans available in India are as follows:
Bajaj Allianz Life Insurance Group Term Insurance:
The Bajaj Allianz Group Term Life Insurance scheme provides up to Rs 1 crore of life insurance coverage to the family of the insured group member in the event of his/her death. This one-of-a-kind group term insurance scheme provides high life insurance coverage without requiring a medical examination.
The plan comes with an add-on cover for critical illnesses that provides coverage of up to Rs 10 lakh in case the insured is diagnosed with critical diseases including cancer, kidney failure, heart attack, and others. It can help the insured to expand their financial security and tailor the group insurance plan as per his/her needs.
Tata AIA Life Insurance Group Term Life
The Tata AIA Life Insurance Group Term Life plan helps the insured group member to plan their family’s future expenses and liabilities with an adequate cover that ensures their loved ones have a stable financial base even after their death. This group plan has the following features:
- It provides a comprehensive life cover to the insured group members.
- The minimum sum assured is Rs. 5000 with no maximum limit.
- The minimum entry age is 14 years and the maximum age is 84 years.
- It offers ease and flexibility of premium payment.
- The premium paid is also eligible for tax deductions.
Future Generali Group Term Life Insurance Plan
The Future Generali Group Term Life Insurance plan has been designed to provide affordable life insurance cover to all members of a group. Take a look at the features of the plan below:
- It provides death benefits to the family of the insured group member.
- Only groups with at least 25 members can buy this plan.
- The minimum sum assured amount is Rs. 5000 per member.
- The minimum entry age is 18 years and the maximum age is 69 years.
- The paid premium is eligible for tax benefits.
- It comes with several riders, including accidental death, critical illness, permanent total disability, etc.
IndiaFirst Group Term Life Insurance Plan
The IndiaFirst Group Term Life Insurance plan protects the members of a group and secures the future of their families at affordable rates. Given below are some of the features of the plan:
- Groups with at least 50 members can apply for this plan.
- The minimum policy cover available is Rs. 5000 per member.
- The minimum entry age is 14 years and the maximum age is 85 years.
- The policy can be amplified by linking it to EDLI plans.
- It comes with an option of a voluntary or automatic scheme.
- Tax benefits are available on the paid premium.
Important Aspects of Group Term Life Insurance
Although a company can provide group life insurance to its workers, it is important to be aware of certain aspects of the policy to get its best value. Take a look at them below:
- Group insurance schemes have many advantages but they can only be used to complement individual insurance plans with extensive coverage.
- Since the employer and the insurance provider determine the terms and conditions of community life insurance, the employee may have to pay additional money to port it to an individual policy.
- These plans do not come with any maturity or survival benefit.
A1. The minimum age for registering into most group term life insurance plans is 18 years.
A2. A community life insurance plan's maximum age for enrollment is 69 years old. At the time of the policy's expiration, the maximum age is 70 years.
A3. A community term life insurance policy has a one-year term, which can be renewed every year.
A4. The community term life insurance policy guarantees a minimum sum of Rs.1, 000 to Rs. 5000 depending on the plan.
A5. Yes, indeed. It's a good idea to have term insurance outside of what your employer provides because if you change jobs or leave your current job, your family can lose the protection they may need. Given that your boss is unlikely to be aware of your circumstances, such as dependents, liabilities, and so on, it is quite possible that your employer's group insurance plan won't be enough to cover all of your dependents when you have gone
A6. In case of the insured's premature death, the insurance provider will pay the sum assured as the death benefit to the designated nominee of the insured.
A7. No. A medical examination of the group member is not needed to enroll them into a group term life insurance policy.
A8. You cannot get the amount paid as a premium back at the end of your group term life insurance policy's term as they do not come with any maturity benefit. However, if the return of premium rider is available under your policy, you can buy it to get your premiums back.
A9. Under the ROP option, you'll get the money that you had paid back by the end of the group term insurance policy's period as a refund of the policy premium but penalties and extra rider costs aren't always included. But since you want your money back, life insurance companies may charge more for the return of premium policies. As a result, group term life insurance premiums are typically 30% higher than regular group term life insurance plans.
A10. No. With group term insurance plans, the coverage ends with the end of the service contract with the employer. However, the employee can get the policy ported into an individual term life insurance plan in some cases.
A11. No, the group term life insurance plan does not provide any maturity benefit.
A12. Yes, you can get riders or add-ons, such as critical illness cover, accidental death, etc. by paying some extra premium under your group term life insurance policy.