Across industries, businesses are waking up to the fact that an organization’s real assets are their human resources. Thoughtful business owners, who consider employees as their biggest assets, are increasingly buying group insurance for their employees in recognition of the same.
Under group insurance, an employer/business owner buys an insurance policy that covers all his/her employees at a given point in time. The employer pays the insurance premium as well. In case of an eventuality, employees may make a claim under the policy. This effectively means that employees are ‘gifted’ a health insurance cover by their employers.
Like individual health insurance, group insurance offers cover to employees towards health-related issues. Health insurance is no less than wealth insurance for salaried employees – it functions as a financial safeguard in case of unforeseen health problems/accidents/hospitalisation for themselves or even for their family member(s). Health insurance ensures the financial security of employees, as a result of which they perform better, contribute to higher ROIs and generally remain more loyal towards the company.
However, in this process, the business owners sometimes do not get themselves insured.
Mumbai-based Aseem Sharma, 37, owned a food-trading company with 30 employees. The company purchased group health insurance of up to INR 3 lakhs for every employee. Aseem was covered by the group health insurance too, but it did not cover critical illnesses and nor did Aseem have individual health insurance for himself.
A year later, Aseem was unfortunately diagnosed with a critical illness. Without adequate, appropriate health insurance, Aseem had no choice but pay from his own pocket. This put tremendous pressure on his business – since he had huge medical bills to pay, the profits he made in the business, went towards paying his medical expenses, instead of being reinvested into the business.
Individual Health Insurance Plan
The above example explains why it is vital for business owners to purchase an appropriate individual health insurance policy for themselves, irrespective of the company’s group policy. Given the increasing stress levels in corporate life, this could be an excellent future investment, both for the individual as well as the company.
Business owners have a dual responsibility when it comes to health insurance purchase – one responsibility is towards their employees and the other towards themselves. Business owners must analyse and understand their own priorities along with those of their employees. This becomes a vital consideration when business owners purchase group health insurance for their employees and an individual health policy for themselves.
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While Purchasing Health Insurance, Business Owners Need to Address the Following Questions
- What is the total budget allocated to insurance purchase?
- Who will the plan cover – The business owner himself/herself, his/her family and dependents, his/her employees?
- What benefits will be offered by the plan? Of these, which ones are essential and which ones are just good-to-have?
- Business owners must know if their individual needs and the needs of their family are different from the needs of their employees
- Business owners must figure out what kind of individual health insurance plan do they and their families need
- Business owners must decide whether to sponsor the plan all by themselves, or split costs with employees
- Business owners must know up to how much of the cost can the company comfortably afford
What to Consider after Group Health Insurance is Bought?
It is advisable to first purchase group insurance, and after all associated formalities are complete and the business owner and his/her employees get their insurance cards, the owners must assess their own needs. This includes an analysis of how much extra cover the business owner and his/her family require.
The options are individual, joint and family health insurance plans. Business owners also need to decide if they require any special coverage such as accidental cover, critical illness cover, specific disease coverage (such as hypertension, diabetes), etc. Only after the business owner has weighed all possibilities and has full clarity on what he/she really needs and wants, should he/she proceed to buy individual health insurance.
Top-up Health Insurance
Top-up health insurance plans permit exceeding the insurance cover’s maximum limit, without the need to purchase a new policy.
For instance, if the business has a set budget allocated towards health insurance, it means that the owner and his/her family will get specific coverage under specific conditions. In case the actual expenses exceed the allotted coverage, extra coverage is required due to insufficiency of the insurance amount.
In such a situation, the business owner could purchase a top-up plan for the required (shortfall) amount – this means he/she would be paying separately and his/her business would not be burdened. Top-up plans also qualify for tax deductions under Section 80D of the Income Tax Act.
Coverage under Group Insurance
Death: This is pure term life insurance for employees, wherein a fixed amount is paid to the nominee named in the policy, in the unfortunate event of the employee’s demise in course of his/her employment with the company.
Disability: If an employee meets with an accident causing a disability due to which he/she is unable to work, a group personal accident policy pays a fixed sum to the employee at regular intervals for a certain period.
Hospitalisation: A group health policy provides cover to employees for hospitalisation costs, for themselves and for any family member.
Travel mishaps: Particularly for employees who need to travel frequently for business, group travel insurance is of great help as it offers cover against mishaps like loss of baggage, airplane hijack, etc.
Why the Scales Tip in Favour of Group Insurance
Compared to individual health insurance policies, group policies offer cover even for employees’ extended family such as in-laws and grandparents. The sub-limits and waiting period are lesser too. Additional benefits like maternity cover are also covered in group health insurance policies, which are usually excluded in individual health insurance policies.
Since group insurance involves bulk purchase as business owners need to cover all company employees, insurance companies almost always offer a volume discount with regards to premium. Therefore, the premium per employee is heavily discounted compared to premiums paid for an individual cover.
Minimisation of procedural problems:
For group health insurance policies, employees need not apply separately for the policy or undergo medical check-ups to receive coverage. Because it is a blanket policy covering all employees on the company’s payroll, employees receive the policy by virtue of working for the company. Employees also get their claims processed faster when the need arises. Further, if any employee faces any issue with the group insurance policy, the company’s HR team takes it up with the insurer, guaranteeing expedited resolutions.
Section 36(ib) of the Income Tax Act specifically allows business owners to claim tax deductions for premiums paid towards the group insurance cover they purchase. As a result, the cost of insurance for the company is largely reduced.
For instance, if a sole proprietor in the 30% tax bracket purchases a group policy for his/her employees, and the annual premium paid is INR 50,000, this amount can be reduced from business profits.
The ABCs of buying group health insurance
To purchase the most suitable group health insurance plan, business owners must pay attention to the following ABCs to ensure they make the right decision:
To evaluate how insurance coverage is tackled by the group insurance policy, business owners must understand the time taken for claims to come through, how soon employees get reimbursed for expenses, and how the company handles the business’s account. All these aspects must be looked at by business owners before finalising the group insurance plan.
Business owners must consider the type of benefits they will receive from the group insurance policy. While some buy group insurance for small businesses, others look at these as health spending accounts as a tax-advantaged way to allow employees to manage out-of-pocket spending themselves, and still others look at both angles. Business owners/employers must check what exactly is covered and what is excluded before making the final decision.
The most important aspect that business owners must consider is the plan’s cost and should purchase a plan that is cost-effective for everyone. Business owners should try and get the best cost-per-employee and the best coverage.
For business owners to manage to retain their good employees is a big deal, and purchasing group insurance is a small cost to pay for it. Financially stable and secure employees are happier, translating to higher productivity, helping business owners gain more and thereby recover a lot more than what they spend buying the group insurance.
In addition to monetary returns, the intangible benefits that come to the fore are the sense of satisfaction, loyalty and belongingness that such incentives instill in employees.
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