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Life insurance policies are saviours when uncertainty arises. It financially empowers your family when you are not around, or a permanent disability robs you of your earning potential. The policy is straightforward; if you want more coverage, you must pay more premium. But does this apply to all life insurance products? A group life insurance is an exception, as you have less control over it.
In the following sections, we will go over this insurance product’s benefits and drawbacks. But first, let us discuss its meaning and how it works.
What Does Group Life Insurance Mean?
Group life insurance is a financial product offered by a large or medium-sized company to its employees. A group life insurance policy is less expensive than individual insurance, and some employers provide it to their employees for free.
As an employee, you do not have to undergo a medical assessment test to qualify for this policy. Moreover, this type of policy does not require individual underwriting. However, the coverage provided under this policy is lower than that of standard life insurance plans.
How Does a Group Life Insurance Plan Work?
Group life insurance plans in India are a single contract that covers multiple employees of the company applying for this policy. When the employer applies this policy, the insurer reviews the group composition. It then decides how much insurance to offer to each group member and sets the premium accordingly. Companies invest in this plan to save money that they would have spent on individual plans for each employee.
If, as an employee, you wish to increase the amount of coverage, you must notify your employer and pay a portion of the premium out of your pocket. Similar to the standard plan, it allows you to specify the beneficiaries. There is also the option to change or add the beneficiary in the future (coverage tenure).
Definition and Purpose of Life Insurance
Life insurance is a contract between you and an insurance company. In exchange for regular premium payments, the insurer provides a lump sum (called the sum assured) to your beneficiaries upon your demise.
Why is Life Insurance Important?
Life insurance offers peace of mind, knowing your family’s financial future is secure. It’s especially vital if you’re the primary breadwinner or have financial dependents.
Term Life Insurance
Features of Term Insurance
● Provides coverage for a specified term, typically 10–30 years.
● Offers a high sum assured at low premiums.
● No maturity benefits unless a claim is made.
Whole Life Insurance
● How Whole Life Insurance Works
● Covers the policyholder for their entire life.
● Includes a maturity benefit or cash value component, making it a savings tool too.
Endowment Plans
● Benefits of Endowment Plans
● Combines insurance and savings.
● Provides a maturity benefit along with the death benefit.
Unit-Linked Insurance Plans (ULIPs)
Investment and Insurance Combined
ULIPs offer the dual advantage of insurance and market-linked investment returns. A portion of the premium is invested in equity or debt funds.
Child Plans
These policies ensure funds are available for your child’s education or marriage, even in your absence.
Retirement Plans
Retirement plans help build a financial corpus to support you post-retirement, often with annuity payouts.
Benefits of Life Insurance
Financial Security for Your Family
In the unfortunate event of your demise, life insurance ensures your family can maintain their lifestyle and meet essential expenses.
Tax Benefits Under Section 80C and 10(10D)
Premiums paid qualify for deductions under Section 80C, and payouts are tax-free under Section 10(10D), subject to conditions.
Wealth Creation and Savings
Certain policies, like ULIPs or endowment plans, act as a disciplined saving mechanism while growing your wealth over time.
Loan Options Against Life Insurance
You can borrow against the cash value of your policy, providing liquidity when you need it.
Factors to Consider Before Buying Life Insurance
Assessing Your Financial Needs
Evaluate your income, debts, and future financial goals to choose a policy that meets your needs.
Comparing Premiums and Policy Terms
Not all policies are created equal. Compare premiums and features before locking in your choice.
Choosing the Right Insurance Provider
Look for insurers with high claim settlement ratios and good customer service reviews.
What are the Features of Group Life Insurance?
Some notable features are detailed below.
◉ The sum assured of group life insurance is determined by the employee's annual income, age, or organisational hierarchy.
◉ The group must have a minimum of 25 members to be eligible to purchase this policy, but this might vary depending on the type of group insurance plan.
◉ The policy issuance is for one year, but the employer has the renewal option for continued coverage.
◉ There is no medical underwriting for group members. The insurer underwrites the coverage by treating the entire group as a single entity based on its nature and composition.
◉ In a term group life insurance, there is also the option to purchase riders# such as critical illness and accidental cover. Consequently, doing so will raise the policy premium.Group Life insurance: Pros and Cons
Hands Shield Several People to Symbolise Group Life insurance Plan Protection
Group insurance has its own set of advantages and disadvantages. If you do not learn about it, you may be jeopardising the future of your loved ones. Let’s go over the details one by one.
Advantages of Group Life Insurance
A group plan benefits both employees and employers. Here is how.
For employers
Low premiums
Employers are typically responsible for paying group insurance premiums. Any company that wishes to purchase individual insurance for each employee will have to pay more premium. A group plan covers the same number of staff at a lesser cost.
Tax benefits
Premium paid by the employer towards group insurance is subject to tax* deduction under different sections of the Income Tax* Act, 1961.
Better retention rate
Group insurance offers mental peace and a sense of security to employees. It allows them to demonstrate their full potential, which increases productivity. Furthermore, it is the best way for businesses to incentivise employees while improving the company’s retention rate.
For employees
Default coverage
When you join a company where the company has purchased group insurance, you get default coverage under this policy.
No prerequisites
When you purchase individual insurance, the insurer considers various factors such as lifestyle, age, and medical history before providing coverage. Though, this is different from group insurance. You get coverage under the policy without any prerequisites, such as medical screening.
Smooth claim process
Group insurance claims are much easier to file than individual plans. You or your beneficiary only need to submit a few essential documents online, and the claim will be processed post-verification.
Disadvantages of Group Life Insurance
Limited coverage
Group insurance offers a limited sum assured. It is usually advisable to have at least ten times your annual income in life insurance coverage so that your dear ones do not face a financial crisis if you are not around. A group plan only covers up to three to five times the annual income.
Discontinuation risk
Group insurance, whether health or life, covers you only while you are a part of the organisation providing coverage. The policy does not cover you if you leave the company to work for another or retire. Given this scenario, it is always preferable to have individual life insurance to protect your loved ones.
Limited choice
Most large corporations work with only one insurance provider. Furthermore, most of the policies offered by employers are term life insurance. As a result, you can only select from a narrow range of life insurance products on the market. You are also not permitted to switch to a different insurer that provides better coverage. Purchasing a policy outside your organisation allows you to select from whole life insurance, money-back plans, and other options.
No additional benefits
Typically, group insurance does not provide customisation benefits. You are not permitted to obtain critical illness coverage or an accidental coverage rider# that your employer did not purchase during the policy purchase or renewal. Moreover, even if you wish to bear a portion of the premium, you may not be able to increase the coverage in some cases.
Conclusion
Group life insurance is a cost-effective insurance option for both employees and employers. It benefits employers by improving employees’ productivity while boosting the retention rate. In the context of employees, it provides life insurance without cost or medical screening.