Group term insurance is a type of life insurance policy designed for groups of people. The plan is usually more affordable than individual policies, and the coverage it offers makes it a lucrative option for employers and employees alike, albeit for different reasons.
These policies are available in various forms and offer different benefits, making it vital for beneficiaries to understand the intricacies involved.
Once you do so, you will be able to make an informed decision about whether this type of insurance is right for you. This article discusses the basics of group term policies as well as their advantages.
What is group term insurance?
Group term life insurance refers to a type of term insurance which covers multiple people belonging to the same group or working under the same employee. So, the employer purchases it on behalf of their employees and the latter’s family.
In most cases, employers are happy to offer the base plan to their employees at no additional cost, with the option to make further changes, such as increasing the cover amount or including accidental benefits.
In most cases, employees between the age bracket of 18 and 60 years are covered under these policies. Here, the insurer pays a lump sum amount to the nominee of the insured in case of the untimely death of the insured during the policy period. The death benefit is decided based on the hierarchy of the employees. The insurance also provides the option to extend the policy coverage by adding riders. These advantages impart group insurance with an exceptional value for the organization as a whole.
How does the scheme work?
Group life insurance does not merely cover you but those working under you too.
Employers decide the death benefit to offer, dependents to cover, and other ancillary aspects. The group term life insurance policy pays out a death benefit to the beneficiaries if someone in the group dies. It is also known as employee benefits plan (EBPL) coverage or group health plan (GHP) coverage, because it covers many healthcare costs for employees and their families.
For this purpose, there is a master plan issued to an administrator, and the group coverage is extended to all the group members. In most cases, the premium paid covers all the members for a year and is annually renewable.
Features of group term life insurance plans
A group term policy is different from a group health plan. The latter gets activated only in limited circumstances, which is not the case with the former. In all fairness, group term policies are similar to individual insurance ones, but only cater to multiple individuals instead of being personalized.
Here are the features of group term plans:
- The count of employees (whom they want to get insured) of the organization applying for a group term plan must be 50 or higher.
- The application process is easy and seamless. The employer needs to submit an application form and complete the necessary know your customer (KYC) documentation.
- These policies are usually flexible and allow the addition of new members to be insured at any point of the year.
Benefits for employees
The benefits of group term insurance go well beyond mere employee protection, as it provides peace of mind for the business as well. Employees feel confident and work without worries, knowing that their loved ones will be taken care of financially if something unfortunate happens.
Here are the benefits of a group term plan for employees:
- Financial coverage: These policies provide financial coverage to the insured’s family and nominees in case of their untimely death.
- Tax benefits: The money received by the nominee or the insured’s family is entirely tax-free under Section 10(10D) of the Income Tax Act, 1961.
- Coverage at low or no premium: As mentioned above, the premium outflow for group insurance is borne by the employer wholly. Even if they deny paying the entire premium amount, employees can manage the dues at a minimal yearly outflow.
- No medical tests required: Individuals covered under group insurance plans do not need to undergo medical tests for ascertaining eligibility, which is otherwise the case with individual policies.
- Customizability: Most group term policies allow insured individuals to make meaningful amendments to their vanilla policy. They can add riders, such as illness cover, increase the coverage, or transform it into a group personal accident insurance. Overall, it helps ensure that you have all the cover you need.
Benefits for employers
In hindsight, it may seem that the employer is merely paying the premiums but not getting anything in return, but that is far from the truth. Here are the benefits of group term policies for employers:
- Low price: Group insurance covers a lot of employees at a significantly lower premium outflow compared to individual insurance. It helps employers save money while offering a perk to their workforce.
- Reduced employee churn: When you provide an insurance cover, it is a key deterrent preventing your employees from leaving their current jobs. It enables them to remain committed.
- Boosts performance: With group term policies, employees do not have to worry about their family’s financial safety in their absence. It enables them to work with greater ease and without any financial stress.
Group term insurance plans are an excellent way to protect the employees of your company and their families. Make sure to speak with an insurance advisor to learn about group term life insurance plans and their benefits.
These policies remain in force until the employee is terminated or the employer decides to cancel the coverage for any other valid reason. In some cases, the insurer also provides the option to convert group plans into individual plans, which is not cost-effective. Therefore, employers should avoid doing this.
Look for the best group term policies for your employees and select the options where you can customize the plans based on your insurance needs. Plum Insurance has a plethora of policies to cater to different business sizes and needs.