A group term life insurance policy is a special insurance scheme designed for offering insurance coverage to a group, like employees, under a single policy. This plan is mainly undertaken for formal employer-employee groups. The plan provides adequate financial security to an employee’s beneficiaries in the event of his or her untimely death. However, the plan is not restrictive and covers other groups like bank and NBFC customers, NGOs, professional groups/associations, microfinance institutions and informal non-employer-employee groups.
What is Covered under Group Term Life Insurance Policy?
This plan covers the employee groups and their families. However, the coverage type offered by the plan depends on the policy provided by a particular organization. Any new employee, who joins as a permanent employee, is by default onboarded to the company’s existing group insurance plan. Employees aged between 18 years (lower limit) and 60-65 years (upper limit) are eligible to be covered under the group term policy.
The life insurance plan’s coverage scope includes an employee’s spouse, children, parents and even parents-in-law. Additionally, the plan covers other benefits including personal accidents, maternity care, daycare and so on.
How Does the Group Term Policy Work?
The employer buys a single group term insurance plan for their employees. The number of people covered under this plan is irrelevant, as a single group administrator is in charge of the contractual obligation between the employer and the insurer. The employer is the policyholder who buys the plan on behalf of employees (insured) and their family members (beneficiaries/nominees).
The employer decides on the amount of sum assured and the premium to be paid as part of the group term life insurance policy. Many large companies offer zero-cost group term policies to all employees as part of their salary package. Additionally, they also offer customized riders at nominal costs. Other companies may pay a part of the policy premiums, with employees contributing the rest of the premiums. There is no individual underwriting required, so new members to the scheme can be easily added at any time during the year.
Likewise, the death benefit to be paid to the employee’s beneficiaries is based on the said employee’s hierarchy. A lumpsum amount is paid to the beneficiaries of the said scheme in the event of the untimely demise of the insured employees during the policy term.
Benefits of Group Term Insurance
The group life insurance policy, similar to group personal accident insurance and group health insurance, is beneficial to both employers and their employees.
Benefits to Employees
- Complete financial coverage
The plan offers comprehensive life coverage benefits to all employees and their families covered under the scheme. The coverage includes an employee’s spouse, children, parents and parents-in-law. The scheme, therefore, provides adequate financial security to the employees’ family members in the event of their untimely death.
- Premiums at Zero/Nominal Cost
Group term insurance premiums come at zero cost or nominal cost to the employee. Normally, employers provide group term insurance plans to employees at zero cost as part of their salary package. Even across companies where employees have to pay part of the premiums, the cost is nominal; these policies are cheaper compared to individual policies. So, employees get the benefits of insurance under group insurance plans at zero or nominal cost.
- Guaranteed Benefit
The plan offers a guaranteed monetary benefit in the form of the death benefit to an employee’s beneficiaries in the event of his or her untimely demise when the policy is active. Thus, the employee’s family members get adequate financial protection.
- Additional Riders
Many employers provide the option of riders at nominal costs, in addition to the basic group insurance plan. These rides include various benefits covering accidental death, critical illness and so on. Employees, therefore, get additional coverage benefits from these riders.
- Tax Benefits
Amount received as death benefit by a beneficiary or nominee under the group insurance scheme is tax-free as per Section 10(10D) of the Income Tax Act.
- No Medical Tests
Normally, a group term policy does not require employees to get their medical tests done to be eligible under the scheme. Employees are directly onboarded to the scheme, giving them immediate insurance benefits.
Benefits to Employers
- Cheaper Insurance
For employers opting for group term insurance, the cost of the premiums is lower. This is because they buy the insurance in bulk for their employees. The lower premium also enables employers to provide the group insurance benefits at zero or nominal cost.
- Gratuity Benefit
By providing group insurance to employees, an employer can save a good amount. This amount can be invested from a long-term perspective to provide gratuity benefits to employee
- Customized policy
Group insurance plans are easy to operate. Employees can be added or removed from the main plan easily. The cost of the premium is directly proportional to the number of employees of a company.
- Tax Benefits
An employer gets tax benefit for the premium paid on a group term insurance plan vide the details mentioned in Section 37(1) of the Income Tax Act, 1961.
- Increased Employee Engagement
With the company providing group insurance benefits at zero or nominal costs to their employees, employees are relieved from the burden of providing additional security to their families on their untimely death. This makes them stress-free. With companies providing such benefits, employees feel more valued and engaged, leading to better workplace productivity.
A group term life insurance policy can be considered an employee-friendly insurance policy available at zero cost or on payment of a nominal cost. This plan helps employers in getting all their employees covered under a single policy and at a reduced cost. The group insurance policy helps in providing adequate coverage to employees and their family members. Many companies also provide riders at nominal costs, giving their employees additional benefits through the group insurance policy. A group insurance policy, therefore, provides various benefits to both employees and employers. For further group insurance scheme details, contact our experts at Plum Insurance.