How Does Group Term Life Insurance Work?

There are numerous benefits available to employees of large-scale organisations these days. As the private sector workforce increases in India, the need to provide benefits to employees for their retention as well as for their well-being is also growing. One of the most practical and useful benefits that a lot of organisations opt for is a group term insurance policy. Under this policy, the members receive a life insurance cover that provides financial compensation to their beneficiaries in the event of the member’s demise. In this article, we take a detailed look at how a group term life insurance policy works.

How does a term insurance policy work?

To understand group term insurance, we must first comprehend the workings of term insurance. A term policy, as its name suggests, provides life coverage to the policyholder for a limited period of time. In contrast, a whole life policy provides coverage for the entire life. Due to this major difference, a term policy incurs lower premiums. One can pay premiums for term policies on an annual basis or opt for a lump-sum premium payment.

What is group term life insurance and how does it work?

A group term policy takes the feature of term life coverage and makes it available to a large group of people under a single plan. Each member of the group policy receives coverage as mentioned in the policy wordings. The person primarily responsible for the policy, who owns and handles it, is referred to as the master policyholder. These kinds of group plans are chosen by various types of groups, such as banks and their customers, co-operative societies, corporate firms, etc.

The process to opt for a group term policy goes as follows:

  1. Deciding the coverage and the sum assured – First, you choose the coverage you wish to provide to your employees. The sum assured will be determined on the basis of the coverage.
  2. Choosing the coverage type – You can provide uniform coverage to all employees, or you can choose graded coverage in which the members receive coverage as per their position in the company.
  3. Estimating the premium – Based on the coverage and sum assured, your financial advisor will reach a premium estimate. Several factors, such as the number of employees, their average age, the working conditions, and so on, are considered when calculating the premium. Nevertheless, if you compare individual vs group term life insurance, the premium for the latter is lower.
  4. Submitting the documents – Now, you will have to submit the documents for verification.
  5. Paying the premium – Once the group term insurance policy wordings are finalised, you can pay the premium which is valid for a tenure of one year.
  6. Receiving the master policy – Once the payment has been made, you will receive the master policy document. 

Features of group term life insurance

  • Eligibility criteria

To be covered under a group plan, all members must meet the conditions set by the IRDA. For instance, the group applying for the policy must be formed for any other purpose than to buy a group insurance plan. All the members must be over 18 years and under 70 years of age. Additionally, there must be a common thread linking the group together.

  • Free cover limit

This concept refers to the sum assured limit till which the members receive coverage at the same premium as others. If a member wishes to attain a higher sum assured amount than the default one, then they will have to pay an additional premium.

Similarly, if they wish to obtain riders, such as the ones for loan protection or critical illness, they can do so by paying an extra premium.

Individual vs. group term life insurance

You might be wondering, which is more beneficial – a group policy or an individual policy? The answer lies in your personal requirements. If you are seeking comprehensive coverage that stays with you regardless of whether you join or leave any organisation, then an individual policy is better. If a lower premium is more important for you, then a group policy may be the wiser choice.

If you have any doubts as to what a particular aspect of group term life insurance is, then do reach out to the HR department of your organisation.