Group Term Life Insurance
In the relentless pursuit of progress and prosperity, employers have come to realise that their most valuable asset is not just their cutting-edge technology or innovative ideas; it is their people. As they embark on this journey towards growth and success, they strive to offer their employees a multitude of perks and benefits as a symbol of their appreciation.
One such invaluable offering is group term life insurance, a beacon of financial security.
What is group term life insurance? How does it work? We’ll discuss the answers to these questions and more in this article.
What Is A Group Term Life Insurance Policy?
A group term life insurance policy offers coverage to a large group of individuals under a single policy. It is an efficient and cost-effective way to provide financial protection to many people simultaneously. It provides a death benefit to the policy’s nominee in the unfortunate event of the insured passing away. So, if you are enrolled in a group term plan and pass away during the policy period, a fixed sum of money, known as the death benefit, will be paid to your nominee.
How Does A Group Term Life Insurance Policy Work?
Group term life insurance policies are commonly offered by various entities such as employers, banks, NGOs, professional groups, non-banking financial institutions, microfinance institutions, etc. Employees, account holders, members, etc. of these entities are covered under the policy.
In this arrangement, the insurance company offers a master policy to the group administrator or master policyholder, which could be the employer, bank, or organisation. And, they issue the cover to all the individuals within the group.
Group term insurance plans can be categorised based on the coverage they provide to the members -
1️⃣ Uniform Cover
It provides a standard or flat coverage amount to all group members. For instance, a company may uniformly offer a group term insurance cover to all the employees.
2️⃣ Different/Varied Cover
It offers varying levels of coverage to the members based on different factors. For instance, an employer offering group term insurance could classify employees based on their professional ranking and salary. So, an employee at a higher position will receive a larger coverage.
Coverage in Life Insurance brings -
- Financial Security
- Disciplined Return
- Tax Savings
Things To Know About Group Term Life Insurance
Here are some important aspects of group term life insurance -
👉 General Eligibility
To be eligible for group coverage, two essential conditions must be met:
● You must be a group member.
● The group must not have been created solely to obtain insurance.
The insurer may also have other criteria, such as the group size, the minimum age for members, etc. If individuals wish to be covered under the group plan, they have to fulfil all the conditions set by the insurer.
👉 Age-Specific Eligibility
To be eligible for coverage under the group plan, each member must be at least 18 years old. However, the maximum age for enrollment can vary depending on the insurance company from which the group policy is bought. Some insurance companies may allow entry up to 65 years, 70 years, 80 years, 85 years, or even higher.
Group term life policies require annual renewal to ensure continuous coverage for the members.
Group term life insurance premium is significantly cheaper compared to the premium of individual policies. This cost-effectiveness of group term insurance makes it an attractive choice for organisations and businesses seeking to offer extensive coverage to their employees or members.
👉 Application Procedure
The application process for group term life insurance policies is simple and hassle-free compared to a retail, individual policy. This means that you will not be burdened with excessive formalities and paperwork.
👉 Tax Benefits
Group term life insurance policies offer tax benefits under two sections of the Income Tax Act, 1961 -
● Under Section 10 (10D), the payout your family receives in the event of your demise during the policy term is completely exempted from tax.
● The premiums for group term plans are mostly paid by the employer/bank/organisation that provides the coverage. In this case, you won’t get any tax benefits. However, if you pay the premium, either fully or partially, you are eligible for tax deductions on the amount you pay under Section 80C.
Important Points To Note About Group Term Life Insurance
Here is some crucial stuff you should keep in mind before enrolling under group term life insurance -
👉 Coverage Is Tied With Your Membership
Group term life insurance provides coverage for the duration of your membership within the organisation or institution. It's important to note that if you decide to resign from your job while enrolled in a group term plan provided by your company, or if you choose to close your account with a bank that offers a group term plan, your coverage will cease with it.
👉 Limited Customisation Available
When compared with individual term insurance policies, group term life insurance policies offer limited features and customisation options. Since these policies are managed by the employer, bank, or organisation, members have less control over the terms and customisation of the policy.
On the other hand, individual policies offer greater flexibility, allowing you to select specific features that align with your needs, exclude unnecessary ones, and tailor the plan to suit your preferences and the requirements of your family.
👉 Limited Control
You need to note that the organisation or institution from which you obtain the group term life insurance policy will have complete control over policy negotiations. They will purchase a policy from the insurance company that aligns with their budget, potentially giving less consideration to your specific needs or the needs of your family. Consequently, your family may end up with insufficient coverage - which may not fulfil their future needs.
Group term insurance is a valuable financial tool that provides coverage to a group of individuals under a single policy. It offers numerous benefits, including death benefits to nominees, tax advantages, and more. On the flip side, it gives you limited freedom to customise the plan and provides coverage only till you are a part of the organisation. We hope this article gave you insights into the various nuances of group term life insurance and helped you understand whether or not it is the right choice for you.
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