Group insurance is provided to a group of people for a certain period of time at an assured sum, compensating the beneficiaries in case of injury or death of the insured during the policy period. The group of people here is usually an organization, with employers seeking to secure the future of the employees’ families. For organizations with a minimum of 50 employees, employers opt for group term life insurance. These policies not only reduce the risks of the organization but also motivate the employees to work effectively and efficiently as they are assured of a secured future.
Today, insurance has become an essential part of the employee benefits package as it provides financial independence in dire situations. Another benefit of having group insurance is that it comes in three different types, which are presented below:
- All employees will be covered with the same sum assured;
- Employees will be covered according to their ranks and positions;
- Apart from the assured sum, additional riders, such as accidental cover and disability benefits, can be included.
The procedure for availing group life insurance is quick and simple:
- The company can choose the group of people to be insured and ascertain their needs for the policy. Then, they have to get the details of every employee’s dependents, spouses, and nominees, along with other basic details such as age and address.
- The company then purchases the policy with a single premium that covers every employee for the term of one year, after which the policy will be renewed. This policy is known as the master policy.
- The sum assured can be determined by mutual discussions and considering the loan and other factors for the employees.
Benefits of Group Term Life Insurance
- Gratuity benefits: During the policy term, if an employee finishes their term of employment, the insurance covers the gratuity, which lowers the employer’s pressure.
- Death payout: If the insured dies during the policy term, then the insurance company will provide the death benefit to the dependents of the employee.
- Affordability: Since many extra costs get clubbed into a single policy, the policy cost is efficiently reduced. Therefore, it becomes affordable to the employer as it is customizable according to the needs of the employees. The various add-ons available on the policy can be altered, making it cost-efficient.
- Tenure: The tenure of the policy is one year, after which one has to renew it continuously.
- No medical check-ups: The main reason why people shy away from life or medical insurance is that they mostly do not cover existing illnesses, and one has to do a medical check-up to prove the same. But in group insurance, one does not need to provide any medical check-up and every existing disease is covered by the policy. Additionally, one can get their routine health check-up done free of cost.
- Tax benefits: Not only is group insurance beneficial, it also provides a taxation benefit to employees. Under Section 10(D) of the Income Tax Act, 1961, the death benefit is exempt from taxation.
- Other benefits of group insurance: A member can be added to the policy at any point in time. If the employee leaves the company, the policy lapses for him with immediate effect. The employees are also eligible for annuity, leave encashment, superannuation, etc.
Not only the employees but also the employers benefit from group term life insurance in many ways:
- First and foremost, insurance makes the employee feel secure and increases productivity. This also helps in employee retention and, in some ways, increases the brand value of the company due to good employee policy.
- As compared to individual insurance, group insurance is more reasonable and customizable according to the company’s size and needs.
- If an equity plan is linked to the insurance, the market profit will be helpful to be set off against the employees’ costs borne by the company.
Group insurance is not restricted to the office; it can also be applied to other institutions, such as small non-governmental organizations (NGOs), banks, non-banking finance companies (NBFCs), and privileged personal organizations. If any of the members have an existing policy, group insurance will act as the secondary policy and will still be effective in death or any other occurrence. Sometimes, the employees are automatically added to the group policy as soon as they join the organization.
Group term life insurance is a good way for both employees and employers to reduce the cost of the premium, avail multiple benefits, and cover a large number of people under the same policy. Apart from saving costs, it also conserves time compared to opting for individual group insurance policies. Today, every organization and NGO prefers to have a group insurance policy, which even the government encourages by providing taxation exemptions and benefits. Hence, every insurance company in India aims to provide better and more beneficial group insurance plans to the company with additional riders and lower premiums. Since there is no background check on the employees and no KYC documentation, the process is quicker, and the data is usually derived from the company records.