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Group Life Insurance – What and Why?

A very common problem which is faced by mostly all the organisations is Employee attrition for encountering which, the Human Resource department keeps on evolving ways to retain employees. Some focus on the culture & activities, some on the atmosphere & facilities, some keeps on upgrading the infrastructure and many such ways are taken in account. Group Insurance is also one effective way which most of the insurance companies offer. It helps the firms in attracting quality staff as well as in retaining them for long.   

Group insurance is an insurance plan that covers all employees or members under a single master policy. In order to take a group life insurance one needs to be a part of the group. A group may consists of doctors, lawyers, members of cooperative banks, credit societies etc. It can be classified as:

  • Contributory Scheme: Where the employer and employees both pay premium towards a group life insurance policy.
  • Non-Contributory Scheme: Where the premium is paid by the nodal agency or employer wholly.

Some examples of eligible groups are:

  • Employer- Employee Group
  • Creditor- Debtor Groups
  • Professional Groups
  • Other miscellaneous groups

Group life insurance products can be classified into Term Insurance based products and Fund Management based products. Term insurance based products include Group Term Life Insurance and Credit Life insurance whereas, Fund Management based products include Group Gratuity Scheme, Group superannuation, Group Leave Encashment and Group annuities.

Benefits of Group Life Insurance

  • Group life insurance offers cover at subsidized rates. Hence they are beneficial to large segments of people who are unable to afford life insurance.
  • Members of an eligible group who are otherwise uninsurable under individual insurance can be covered under group insurance.
  • Group insurance is more affordable than a similar number of individual policies. 

Types of Group Insurance: 

Group Term Life Insurance: A group insurance plan that provides a lump sum to a beneficiary in case of death of a covered member during the defined covered period. A group term life policy is usually issued for a period of one year and renewable each year. The premiums are experienced rated, based on the company's deaths, and range of employee's ages.

Group Gratuity Plan: A fund management based group insurance scheme that pays a Gratuity as a stated benefit to employees generally when they retire, resign or separate from the company, after completion of 5 years in employment. Every employer has to obtain insurance for his liability for payment towards the gratuity.

Group Investment Linked Insurance Plan: A group insurance plan that combines the dual advantage of investment and protection and offers the members the best of both worlds. These can also be called as group unit linked plans and give you the advantage of market linked investments.

Group Leave Encashment Scheme: A Group Leave Encashment Scheme helps the employer to fund their Leave encashment liability payable to your employees. This product can be linked or non- linked in nature.

Group Mortgage Redemption Assurance Scheme: Group Mortgage Redemption Assurance Scheme is a group insurance policy that covers the life of a member who has taken a loan.

Group Critical Illness Rider: An add on rider that can be opted along with your group insurance plan that gives you added financial protection in case of a critical illness.

Most of the Group Insurance Plans that are available in the market are covered under the EPFO (Employee Provident Fund Organization). It makes it compulsory for the employers to offer insurance to the employees under the Miscellaneous Provision Act 1952 and Employee's Provident Fund. Group Insurance is beneficial for both employees as well as for employers as it accords a world of benefits to both.