Group term life insurance is insurance taken by a group of people where the members can enjoy the insurance coverage.
- However, the first critical condition is that the members must not have formed a group especially for buying the group insurance policy.
- Secondly, the policy can be either compulsory or voluntary depending on the policyholder’s decision.
For example, most companies offer employees group term life insurance that ensures their family's financial security even after their demise.
- It is aimed to provide monetary benefits to the appointed nominee covered under the plan in the event of the life insured’s death.
- It also functions as a tool for employee retention in large organizations.
- The group term life insurance coverage in non-employer-employee groups primarily acts as a value add for the members/customers.
Who is eligible to avail group term life insurance?
Group term life insurance is offered to several categories of working class such as:
- Employee-employer groups
- Non-employer – employee groups like associations, cooperative societies
- Non-banking financial institutions
- Professional groups, and
- Micro finance institutions
The term insurance eligibility criteria can vary for each of these groups, subject to the basic requirements for having insurance. While some plans may offer basic and uniform coverage to all the members of the plan, others may offer a CTC based or graded coverage based on the professional ranking or position of the members included in the plan.
Features of Group Term Life Insurance Policies
These policies possess a host of attractive features that make them an ideal option to be crafted into employee benefit baskets. Here are some of those features:
- Term Insurance Eligibility Age
The minimum entry age is 18 years and the maximum ranges between 65-69 years.
Many employer employee group term plans cover the basic salary or fixed multiple of total salary, and any other compensation in the form of bonus, or reimbursement reported as income is excluded.
- The coverage offered by a group term life insurance plan varies widely between employers.
- The amount of coverage may also depend on one’s salary or position in the organizational hierarchy.
- On the other hand, some small and medium sized companies do provide a flat and uniform coverage to all its employees.
In case of non-employer employee groups, the amount of cover and the rules are defined at the time of taking out a group policy.
- Premium Cost
Premiums contributions are made by the Master Policyholder, which is employer in case of an employer-employee group or can be the administrative body of the institution in case of non-employer-employee groups
The premium may also be shared with the members for example, employee contribute from their salary during the employment.
- The good news about the group term plans is that they are underwritten on a group basis and hence the process is simple
- The eligible employees are by default covered under the group term plan, and premiums are based on that group of employees, irrespective of their health.
- For non-employer-employee group(s), the rules can be a little stringent
- The majority of plans feature premium cost bands where the cost of insurance increases gradually according to age groups.
- The premiums for each premium cost band are generally mentioned in the plan document. So, a healthy employee in the group can offset the high premium costs for other employees who would otherwise be considered uninsurable.
The policy term for group term is usually one year. Thereafter, the policy needs to be renewed every year. Having said that, it is best to check the options available with the respective insurance company.
As coverage is related to one’s current employment, the coverage automatically terminates upon exiting the current job or leaving the group as per the scheme rules.
- However, certain insurance companies provide the option of converting the group term life insurance policy to an individual permanent policy while shifting to a new job or moving out of the group.
- Tax Benefits
Group term life insurance plans provide tax benefits to the employees. As per the current tax laws, the death benefit payouts to the legal beneficiaries are tax exempted under Section 10 (10D) of the Income Tax Act 1961. However, tax benefits are subject to change as per tax laws.
- No medical check-ups
Group term insurance plans spare employees the inconvenience of having to undergo medical examinations depending on the free cover limit (non-medical limits). In case of non-employer-employee groups, the cover may be subject to medicals beyond a certain limit.
The Bottom Line
Given that term insurance eligibility for group plans is dependent on a variety of factors such as member’s age, professional ranking, etc., it is wise to sign up for group plans that offer a varied coverage options.
One size does not fit all and choosing plans such as Future Generali Group Term Life Insurance plan that offers the following benefits:
- You can provide life insurance coverage to all your members under a single plan.
- Sum Assured is paid on the death of a member covered under the plan.
- You can add and delete members monthly.
- It is a tool for providing employee incentives and improving employee retention
- Offers tax benefits as per prevailing tax laws.
- One-year renewable term insurance plan and premiums are payable annually in advance or installments over the year, and much more!
Unquestionably, purchasing insurance protection against a variety of risk factors, let alone life, through a group insurance policy is a wiser move. To know more, connect with our trusted financial advisors today!