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If you are a part of an organisation that offers term life insurance to all its employees, then it is most likely you are a member of a group term life plan. What is group life insurance? It is a policy encompassing a wide number of people held in place by a master contract. These policies are mostly opted for by large-scale companies as well as institutions such as NGOs, banks, microfinance firms, and so on. It offers the members of the group financial security. If an unfortunate event were to lead to the passing away of a member, the policy ensures that their loved ones receive financial compensation.
Understanding term life insurance
Before we learn in-depth about group term life insurance, we should clearly understand how an individual term life policy works in the first place. A term insurance policy provides financial succour to the family if the policyholder passes away during the course of the policy’s tenure. Unlike whole life insurance, whose tenure is valid till the policyholder is alive, a term life insurance policy is binding for the insurer for a limited period only. Hence, they are called term policies.
As the workings of a group term policy are different from a regular policy, its features are different as well. We look at them in detail below.
Features of group term life insurance
- Held in place by a master policyholder
In a group term insurance policy, it is the policyholder with access to the master contract that determines the various aspects of the term plan. For instance, it is the master policyholder that determines the sum assured amount. The premium for all the employees is calculated as per this sum assured amount. They also decide what kind of coverage the members will receive, whether there will be riders included, and so on.
- Coverage may vary between employees
Group term life insurance policy is a type of group life insurance, in this policy the master policyholder has an option to choose between multiple types of coverage for the members. There may be a flat cover for everyone, in which each member receives the same amount as coverage, regardless of their position in the company. The master policyholder can also opt for a graded cover type in which the coverage is decided as per the hierarchies present within the company.
- Cost-effective in comparison to individual policies
Since many people are being covered under a single group life insurance plan, the premium is much lower than it would have been to buy separate life plans for the members. The premium is deducted from the member’s salary. This is also beneficial because it reduces the chances of the policy lapsing since there is no scope for late or missed premium payments.
As with any other type of life insurance, there are pros and cons of group policies as well. We take a look at these to get a deeper understanding.
Merits of group term insurance
- No medical check-up required
You do not have to undergo any tests or check-ups to be a part of a group term policy. You receive coverage once you have opted for this aspect of the organisation’s benefit. Similarly, there is no medical underwriting involved either.
- Tax benefits
The financial compensation received on the passing away of the covered member is exempted from taxation as per prevalent laws. Furthermore, the premium amount can also be used to claim tax deductions and save on tax.
- Hassle-free
Since all aspects of the policy are being handled by the master policyholder, you do not have to worry about it. You receive term life coverage without going through any hassles.
Demerits of group term insurance
- Not ideal for those with multiple dependents
Since a group term insurance offers limited coverage only, the compensation amount may not prove to be sufficient for those who have multiple dependents. The member would be better prepared with a separate life insurance policy for themselves in such a scenario.
- No option for customised coverage
Each individual may have their distinct needs. And this is all the more prominent for a life insurance policy. With a group policy, however, the member does not have an opportunity or freedom to customise the policy as they want. An individual policy would be a better option here as well.
We hope this article has helped you understand the nuances of what group life insurance is. If you have any queries about getting covered under a group policy, reach out to the concerned authorities in your organisation.
