Group term life insurance policy is a benefit that many companies offer to their employees. It offers an affordable way for employees to secure the financial future of their family in case of an unforeseen incident. A group term life insurance policy provides coverage for a group of people, typically employees, under a single contract.
Being a part of a company that provides its employees with a group term life insurance policy can be a lifesaver. It is a great way to ensure that the employee's family is taken care of financially when they are no longer with them.
What is group term life insurance?
Group term insurance plan is a type of insurance policy that provides coverage for a group of individuals. Employers usually offer group term life insurance as a benefit to their employees. The primary purpose of this policy is to provide financial protection to the beneficiaries of the employees in case of their untimely demise. The coverage for this policy is temporary and ends after a specific term. The premiums for group term insurance plans are typically lower than other policies due to the group nature of the insurance. Group term insurance is a valuable benefit that can help provide peace of mind to employees and their families.
How does group term insurance work?
A group term insurance policy covers a group of people under a single contract. The employer arranges for the insurance company to provide coverage for its employees. Typically, the employer pays the premium, and the employees are beneficiaries of the coverage.
The premium for a group term life insurance policy depends on the age, occupation, and salary of the employees. This premium is usually cheaper than that of individual life insurance policies. However, the coverage amount may not be as comprehensive as individual policies.
Key features of group term life insurance
Group term life insurance benefits and features include the following:
1. Death cover:
The primary feature of the group term life insurance policy is the death cover. This cover provides financial coverage to the nominee in case of the employee's unfortunate demise, ensuring their family’s financial stability and protection from sudden loss of income. It helps dependents manage expenses like household costs, children’s education, and outstanding debts.
2. Gratuity benefit:
Gratuity benefit is another feature of a group term life insurance policy. It provides a lump sum payment to the employee who has served the company for a specified period, acting as a financial reward for long-term service. This benefit helps employees plan their retirement better and secure their financial future after leaving the organisation.
3. Group credit protection plan:
A credit protection plan is a feature that provides financial coverage to the group if any of the members cannot repay their loans due to unforeseen circumstances like death or disability. This ensures that the burden of repayment does not fall on the borrower’s family, protecting them from financial distress and legal complications.
4. Comprehensive coverage:
It protects the group from multiple risks such as sudden death, accidental death, and critical illness. This ensures financial security for employees and their families by covering unexpected medical expenses, treatment costs, and loss of income due to severe health conditions. It provides peace of mind, knowing that they are financially protected against life’s uncertainties.
5. Premium payment flexibility:
Group term life insurance plans offer flexible premium payment options such as monthly, quarterly, or annually, making it convenient for employers to manage costs. Premiums can be paid entirely by the employer or shared with employees, depending on the policy agreement.
6. Experienced fund management:
These plans are often managed by seasoned fund managers who ensure that the insurer maintains adequate reserves and financial health. This adds a layer of confidence and trust in the insurer’s ability to meet claims efficiently.
7. Portability option:
Some group term insurance policies offer portability, allowing members to convert their group coverage into individual plans upon leaving the organisation. This ensures continuous life cover without interruption or the need for fresh underwriting.
8. Cost-effective solution:
Group term life insurance is generally more affordable compared to individual policies. The risk is spread across multiple members, allowing insurers to offer lower premiums, making it a cost-effective option for employers and employees alike.
Key benefits with group term life insurance
Group term life insurance policy serves as a cost-effective way for employers to provide valuable financial protection, enhancing overall employee well-being.
- Financial security for employees' families: Group term insurance ensures that in case of an employee’s unfortunate demise, their family receives a lump sum payout. This financial support helps cover daily expenses, education costs, and outstanding liabilities, providing much-needed stability during difficult times.
- Affordable premium rates: Since the policy covers multiple individuals under a single plan, the premium rates for group term insurance are lower compared to individual life insurance policies. Employers can provide substantial coverage to their employees at minimal costs, making it an economical benefit.
- Customisable coverage options: Organisations can customise the group term insurance policy based on their workforce's specific needs. Coverage can include accidental death benefits, critical illness riders, disability protection, or additional payouts, ensuring comprehensive financial protection.
- Tax benefits for employers and employees: The premiums paid for group term insurance qualify for tax benefits under the Income Tax Act. Employers can claim deductions on the premium paid, and employees may receive tax-free death covers, making it a financially beneficial option for both parties.
- Gratuity and employee retention: Some group term insurance policies integrate gratuity benefits, rewarding employees for their long-term service. This enhances job satisfaction, boosts morale, and improves employee retention rates within the organisation.
- Easy enrolment and hassle-free claim process: Group term insurance policies have a simple onboarding process with minimal documentation. In case of a claim, the payout process is streamlined, ensuring quick financial support for the nominee without unnecessary delays.
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How group term life insurance benefits your employees?
Here are some group life term insurance benefits that employees can enjoy:
1. Financial coverage:
Group term life insurance provides financial security to the employee's family when they need it the most.
2. Lower premiums:
Group term insurance premiums are cheaper than individual life insurance policies, as the cost of coverage is spread among the group.
3. Tax benefits:
Group term insurance provides tax benefits to the employee, as the premium paid for the policy is tax-deductible.
4. Add-ons:
Group term insurance policies provide add-ons such as critical illness cover and accidental death cover, which can benefit the employee and their family in case of any unfortunate event.
5. No medical check-up:
Employees can get coverage under a group term insurance policy without undergoing a medical check-up, which saves them time and money.
Key advantages and disadvantages of group term insurance
Here is a quick overview of the pros and cons of group term insurance:
Advantages |
Description |
Disadvantages |
Description |
Affordable premiums |
Group term life insurance is cost-effective as the premiums are lower compared to individual policies, making it a budget-friendly option for employers and employees. |
Limited coverage |
The coverage amount may not be sufficient to meet all financial needs, requiring employees to buy additional personal life insurance. |
Financial protection |
Provides financial security to the employee’s family in case of untimely demise, helping cover expenses like debts, education, and daily needs. |
No ownership of policy |
Employees do not own the policy, and coverage is lost if they leave the organisation, making it unreliable for long-term security. |
Easy enrolment |
Employees are automatically enrolled with minimal paperwork and no medical tests, ensuring hassle-free access to coverage. |
No customisation |
Group policies offer limited flexibility, with standard coverage that may not suit individual financial goals or specific protection needs. |
Tax benefits |
Both employers and employees can avail tax benefits on premiums and payouts under applicable income tax laws. |
Coverage depends on employment |
The policy remains active only while the employee is part of the organisation, leading to gaps in coverage after job changes. |
Benefits of group term insurance for employers
Here are some benefits of group term insurance for employers as well:
Reduces employee attrition:
Employers who offer group term insurance to their employees tend to have a lower attrition rate than those who do not. Employees feel more secure and valued when their employer takes measures to ensure their financial security, leading to higher job satisfaction and long-term retention.
Boosts employee performance:
A happier and more secure employee tends to be more motivated and productive, which can benefit the employer's overall performance. With reduced financial stress, employees can focus better on their work, improving efficiency and workplace morale.
Builds credibility:
Offering group term insurance can help build a company's credibility and reputation, which can attract new employees and customers. Providing such benefits reflects a company’s commitment to employee well-being, enhancing employer branding and positioning the company as a responsible organisation.
Enhances employee benefits package:
Adding group term insurance strengthens an organisation’s employee benefits package, making it more attractive to potential hires. A comprehensive benefits plan gives employers an edge in hiring and retaining top talent in a competitive job market.
Provides tax benefits:
Employers can avail tax deductions on the premiums paid for group term insurance under applicable tax laws. This reduces the financial burden on the organisation while ensuring employees are covered.
Encourages employee loyalty:
Employees appreciate organisations that invest in their well-being. Providing financial security through group term insurance fosters trust and loyalty, reducing turnover and improving workplace culture.
Types of group term life insurance
There are different types of group term life insurance plans tailored to organisational needs:
- Employer–employee group term plan: Offered by companies to provide life cover to employees.
- Non-employer–employee group term plan: Covers members of clubs, associations, or NGOs.
- Contributory group plan: Premiums are partially or fully paid by members.
- Non-contributory group plan: Entire premium is paid by the employer or group sponsor.
- Group term insurance with riders: Includes additional coverage like critical illness or accidental death.
- Renewable group term plan: Offers yearly renewable life cover based on group size and changes.