Having suitable life insurance at your workplace seems really convenient and hassle-free. Many employers offer their employees group term life insurance policies at little or no cost. In fact, more employees are covered by such workers’ compensation insurance plans than have their own individual life insurance.
So, is opting for a collective term life plan a good idea? Here’s our guide to help you learn more about group term insurance plans, how they work, their benefits, and whether or not you should have one.
Types of group term life insurance plans available to buy in India
What is Group Term Life (GTL)?
Group term life insurance refers to a life insurance plan that provides coverage to multiple people or a group of people under one plan. Group term insurance plans are intended to provide financial protection to the agent or beneficiary in the event of the death of the person covered during the term of the contract.
The most common example of group term life insurance is when a company offers term insurance to all of its employees under a single plan or contract. The contract is given to the employer who, in turn, provides coverage to its employees. These plans also have a primary insured, who acts as the central administrator on behalf of the group members, which is the employer in this case.
Compared to individual term insurance, group term life insurance is relatively inexpensive. Note that group term coverage is in effect until employment is not terminated or until the end of the policy term. Currently, the insured has the option of converting their group coverage into an individual policy if they plan to leave their current employer. However, this conversion tends to be much higher than the premiums of the policies offered to individuals.
How does group term life insurance work?
Continuing with the above example of employer-employee group term insurance, the employer being the primary policyholder issues the sum insured coverage to its employees through the single primary policy. The main underwriter decides the amount of the sum insured (life cover) that can be made on the basis of:
Flat cover: Offer similar life coverage to all employees.
Graduated coverage: Life cover is given according to the hierarchical levels of the company.
In the case of formal groups like a company, the sum insured is either tied to the member’s loan amount or the employee’s salary. If linked to salary, the life cover becomes equal to a multiple of the annual salary. The amount of life cover is usually equal to one or two times your annual salary. Supposedly, if a member has an annual salary of INR 5 lakh and the considered multiple is two, the life cover amount would be INR 10 lakh.
Typically, the employer pays the entire premium amount, but in some cases the maximum portion of the premium payment is made by the employer and the remainder is deducted from the employee’s salary. The amount of the premium is not the same and depends on factors such as the size of the organization, the number of employees covered, the average age of the employees, etc.
It is also possible to add riders to the policy, such as accidental death, critical illness and terminal illness, which enhance the coverage of the pure term insurance policy. One can also choose the option of settling employees’ home or auto loans, should they die.
What are the main features of group term life insurance?
- Provides life insurance coverage to multiple people under one policy.
- The premium is paid in full or the large sum is paid by the employer.
- Group term life insurance plans are renewable on an annual basis.
- As all employees receive free life cover, actual cover becomes limited and depends on factors such as risk class and group size.
- The sum insured is paid to the agent on the death of the insured person.
- Apart from the death benefit, no other benefits such as maturity and survivor benefits are provided.
- The individual has the option of covering their spouse and dependent children under the same policy.
- This is a cost effective option as life cover is available at lower premium rates.
- Simple and hassle-free process of adding and removing members in the policy.
- Additional riders such as Critical Illness, Accidental Death, Disability may be selected at nominal additional premium cost.
- A minimum of 10 members is required to enroll in the group term insurance plan in the case of a formal group (employer-employee), and a minimum group of 50 members can enroll in this plan in the case of a group informal (non-employer-employee) .
What are the main benefits of group term life insurance?
Who is eligible for group term life insurance?
- Employer-employee groups.
- Non-employer-employee groups.
- Small and medium-sized enterprises (SMEs).
- Microfinance institutions.
- Banks and non-banking financial institutions.
- Professional groups.
What are the disadvantages of group term life insurance?
- It does not include maturity and survivorship benefits.
- Restriction on customization of the plan according to individual choice, as the premium and sum insured are decided by the employer.
- The individual has no control over his policy. Coverage is also low, which is also set by the employer.
- The covered employee cannot continue the policy if he decides to change or leave his current job.
For our Forbes Advisor India ratings, we analyzed 35 Indian life insurance companies offering group term life insurance plans and selected the top ones offering the most suitable group term insurance, based on the parameters following:
- Cost competitiveness (20% of score)
- Claims settlement ratio (20% of score)
- Full coverage provided (20% of score)
- Additional benefits and endorsements (20% of the score)
- Flexibility to customize policy (10% of score)
- Customer Support Team (10% of score)
Frequently Asked Questions (FAQ)
Which is better: an individual term life insurance plan or a group term life insurance plan?
Well, it totally depends on your personal financial goals. If you are looking for low cost life insurance protection for a specific period to cover your family or to cover any mortgages, you can simply opt for a group term life insurance plan. However, if you are looking for huge, whole life coverage, you must have your own individual term life insurance policy.
Will I receive product at maturity with group term life insurance?
What do you mean by free coverage limit in group term life insurance?
How long will I be covered by group term life insurance?
My personal habits such as smoking, etc. will they affect the cost of the group term life insurance premium?