Group term life insurance plans provide life insurance coverage to a group of individuals under a single policy. These policies are commonly offered by employers to their employees but can also extend to other groups, such as customers of banks, NGOs, professional associations, non-banking financial institutions, and microfinance institutions.
A group insurance policy ensures financial assistance to the beneficiaries of the insured individuals in the unfortunate event of their passing. These plans offer multiple benefits, including uniform coverage for all or ranked covers based on the hierarchy within the group. Some group insurance schemes also provide coverage for outstanding loans to borrowers, while others include additional benefits such as critical illness and disability coverage.
Understanding group term life insurance
A group term life insurance policy is structured to provide financial security for members of a specific group. It differs from individual life insurance policies in terms of coverage, cost, and eligibility. These policies are cost-effective as they cover multiple individuals under a single plan, resulting in lower premiums compared to individual policies. The premium is often borne by the employer, fully or partially, making it an attractive benefit for employees.
Group term life insurance is widely preferred due to its ease of enrolment and comprehensive coverage. It eliminates the need for individual underwriting, making it accessible to all members of the group without requiring extensive medical examinations or documentation.
Key benefits of group term life insurance
Default insurance cover
A group insurance policy provides automatic insurance coverage to all members simply by virtue of being part of the group. This ensures that even individuals who do not have personal life insurance policies receive financial protection for their families in case of an unfortunate event.
Gratuity funding
Employers can use group term life insurance policies as a structured method for gratuity funding. These policies help in building a systematic corpus to meet future gratuity liabilities, providing financial security to employees while fulfilling the employer’s obligations with greater ease.
Tax benefits
Both employers and employees can benefit from tax advantages under group term life insurance plans. As per prevailing tax laws, death benefits are exempt from tax under Section 10(10D) of the Income Tax Act, 1961. Additionally, contributions made by employers toward these policies are tax-deductible as a business expense, making them a financially viable option.
Customisable to suit employee needs
Group insurance policies offer flexibility and can be tailored to include additional benefits such as education allowance, repatriation allowance, accidental death cover, and critical illness riders. Employers can choose add-ons that align with the specific needs of their workforce, ensuring a comprehensive financial protection plan.
No medical check-ups
One of the biggest advantages of group term life insurance is the elimination of medical check-ups for enrolment. Employees can be covered under the policy without undergoing medical examinations, making it convenient and accessible, especially for those with pre-existing health conditions.
Cost-effective
Group term life insurance policies are cost-effective because they provide coverage for multiple individuals under a single contract. The risk is distributed among a larger group, reducing the overall premium costs. Since many employers bear the premium cost or offer subsidised rates, employees can avail of this benefit at a lower cost compared to individual term insurance policies.
Financial security for employees and their families
A group term life insurance plan ensures financial stability for employees’ families in the event of an untimely demise. The lump-sum death benefit paid to the nominee can help cover household expenses, children’s education, outstanding loans, and other financial commitments.
Employee welfare and retention
Offering group term life insurance as part of an employee benefits package enhances job satisfaction and employee retention. It demonstrates an employer’s commitment to the financial well-being of their employees and their families, fostering loyalty and long-term association with the organisation.
Additional coverage options
Employers have the option to enhance group term life insurance policies by including additional coverage options such as:
- Accidental death benefits – Provides an extra payout in case of accidental death.
- Critical illness cover – Offers financial assistance if the insured is diagnosed with a critical illness.
- Disability benefits – Ensures compensation in case of total or partial disability affecting the employee’s ability to work.
Considerations before opting for group term life insurance
While group term life insurance offers numerous benefits, there are certain factors to consider:
- Coverage limits – The sum assured under a group policy may be lower than an individual policy, requiring employees to supplement coverage with personal term insurance if necessary.
- Policy dependency on employment – The insurance cover is linked to employment, and an employee may lose coverage upon leaving the organisation unless there is an option for portability or conversion to an individual policy.
- Limited personalisation – Unlike individual policies, group term life insurance may not offer extensive customisation options, as the terms and benefits are predetermined by the employer or policy provider.
Conclusion
Group term insurance is an effective way for employers to provide financial security to their employees while simultaneously fulfilling corporate social responsibility and legal obligations such as gratuity funding. The plan offers cost-effective coverage, tax benefits, and additional financial protection through customisable add-ons. However, employees should be aware of the coverage limitations and consider supplementing their insurance needs with an individual term plan if required. Employers looking to enhance employee satisfaction and retention should consider incorporating group term life insurance as a key component of their benefits package.
