The default tenure of a group term insurance policy is one year. However, it provides the option of renewing the policy annually for extended coverage. The policyholder can go for it at their convenience.
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What is a Group Term Life insurance and How it Works?
A group-term life insurance policy is one of the best perks that you can provide your employees to motivate them to work hard. Are you planning to purchase one for your workers? You can follow some simple steps similar to a term plan for purchasing it.
However, before proceeding, it becomes mandatory to know everything about their meaning, working methodology, features, benefits and so on to make an informed approach. Keep reading to know all about these plans so that you can make the best decision.
What Is a Group Term Life Insurance Plan?
A group term life insurance plan provides financial coverage to a troop of people for a fixed duration. You must pay a fixed premium rate on your employees' behalf to keep the plan active. This plan provides sufficient funds to your employee's family in case of their untimely demise during the policy tenure. Also, it offers monetary security in case of the employer's demise.
Here the policyholder is the employer, the insured is the employee, and the beneficiary is the employee’s family. Many companies provide these to their workers as an incentive without charging additional costs.
Employees also have the flexibility to add riders to this plan as per their requirements for extended coverage. Want to know how group term policies work? Read on to find out.
How Does Group Term Life Insurance Policy Work?
In the case of a group term life insurance plan, there is a group administrator. They are responsible for paying the initial premium for purchasing the master policy. Usually, this premium is sufficient enough to keep the policy active for one year. After that, they can renew the policy to keep reaping its benefit.
The premium of this policy is calculated based on the age distribution of people in the group and its size. People who are covered under this policy have the option to select a sum assured of their choice. The policy offers the flexibility to pay the sum assured as a one-time payment or connect it to a loan account or payroll.
What Are the Key Features of Group Term Life Insurance Policy?
These policies usually have myriad features that you should be aware of before proceeding with your purchase. This will help you and your employees make the most of these policies. Some of the notable features include:
- Minimal conditions: Not many terms and conditions are associated with this policy. However, it is essential to go through them when the employer purchases this plan.
- Death benefit: In case of the untimely demise of the insured, their family will be able to receive lump sum money. It can provide them with sufficient financial support for a considerable time.
- No medical records needed: The employees will not need to submit their medical records during the purchase of this plan. However, it is essential that they disclose any critical illness that they have to get extended coverage.
- Easily affordable: These plans are usually inexpensive, making them easily affordable for employers. Thus they are known to provide sufficient risk protection at lower costs.
- Provides sufficient coverage: The money that the insured's family receives is decided based on their official designation. However, it is usually sufficient to last for some time after the breadwinner's demise.
The above features can immensely benefit both employers and employees. Read on to find out how you can reap the advantages of this type of policy.
What Are the Benefits of Group Term Life Insurance Policy?
Whether the employer or the employee, this policy benefits both. This makes them a popular choice for both of them. Some of these include:
Benefits of Group Term Insurance for Employers: This policy can be advantageous to employers as well in the following ways:
- High productivity of employees: With the purchase of these policies, employees feel that the employer cares about their families as well. This motivates them to increase their productivity and work well.
- Allow employees to stay focussed: By purchasing this plan, the family of employees stay financially protected. This removes the additional worry about their family from a worker's mind allowing them to stay focused on their work.
- Attracts highly-qualified workers: A group term insurance policy can act as a perk that an employee can receive on joining the company. It allows them to join the company and take it to new heights using their skills.
- Retaining employees longer: Since this policy expires on leaving the company, it prevents workers from resigning randomly. They usually wait for considerably better opportunities and think twice before leaving the company.
Benefits of Group Term Insurance for Employees: The benefits that employees can reap from this policy include:
- Provides life coverage to the family: The family of the insured individual usually receives sufficient money in case of their untimely demise. This money can help financial assistance for a considerable time duration.
- Additional payment is optional: The employees can pay extra for additional riders or increase the sum assured. Also, some insurance providers allow them to convert it to a personal plan in case they go for a job switch.
- Tax exemptions on payouts: According to Section 10D of the Income Tax Act, the nominees will not have to pay any additional tax on the claim amount. This allows them to have a sufficient amount of funds.
- No medical tests needed: Employees will not need to conduct additional medical tests when the employer purchases this policy. Thus, it saves their time, money and effort.
- Customisation available at times: Some insurance providers allow employees in the group to customise their policy as per their needs. However, to do this, they will sometimes have to pay extra.
- Simple documentation process: Workers will need to provide some basic documents while purchasing this policy. In addition to this, the processes involved are also quite simple to follow.
However, before purchasing such a policy, you should note that only a few groups of people are eligible for these policies. So, it goes without saying that you should belong to them to buy this plan.
Who Is Eligible for Group Term Life Insurance?
Are you eligible or not for a group term life insurance policy? Here are some entities that can purchase these policies to reap the benefits mentioned above:
- Employer-employee groups.
- Small and medium enterprises (SMEs).
- Non-employer-employee groups.
- Professional groups.
- Microfinance institutions.
- Banks and non-banking financial institutions.
Apart from this, the age of the people in the group should range between 18 and 69 years to stand eligible for this policy. However, before proceeding with its purchase, you should also be aware of the limitations of this policy to get a holistic idea and make the best decisions.
What Are the Disadvantages of Group Term Life Insurance Policy?
Besides the numerous group-term life insurance benefits policies, some disadvantages can make you think twice before purchasing them. These include:
- Does not offer maturity benefits: These policies do not offer survival benefits or maturity benefits. So, if the insured person outlives the policy tenure, they will not be able to receive any money.
- Employers set coverage amount: Certain insurers allow only the policyholder to set the coverage amount. Also, they do not allow customisation of the policy as per the requirement of employees.
- Policy lapses after leaving the job: Employees can no longer claim the policy payouts once they change their job. Thus, their family will stay uncovered in case of the untimely demise of the breadwinner.
So, employees should purchase a separate term policy to ensure their family does not stay underinsured. Nonetheless, myriad reasons compel you to purchase this plan for the benefit of your employees.
Why Choose a Group Term Insurance Policy?
Wondering why to choose a group term insurance policy? Here are some key reasons for selecting them that you should not miss out on.
- Aids in saving money: The cost of a group term insurance policy is generally less. Also, you can claim tax benefits to save more on premiums. Thus, you will not have to invest much to keep your employees happy.
- Offers sufficient life coverage: These policies offer sufficient life coverage to employees and their family members at a minimal cost. Also, you can increase the coverage in case your employee has pre-existing conditions.
- Ensures employee satisfaction: By purchasing a term insurance policy, you can assure them that their life is valuable to you. This allows you to enforce a positive workplace environment and increase employee retention.
- Availability of various options: Many insurance providers offer group term insurance plans. So, you can conduct thorough market research to select the best plan within your budget.
- Customisation option available: Many insurance providers allow the employees in the group to customise their plans according to their needs. Hence, they can benefit immensely from these plans.
Weighing the advantages against the disadvantages, it is evident that a group-term life insurance policy is immensely beneficial for both employers and employees. So, employers should go for purchasing them, considering their dual benefits. However, it would be best to research insurance providers to select the best plan.
FAQs About Group Term Life Insurance
There can be many objectives for policyholders to purchase this policy to benefit their employees. They usually include gratuity, annuity, life cover, savings tools, and credit protection.
There should be at least 50 people to purchase a group term insurance policy. However, this number can vary across the insurers. So, you can find the number and accordingly include people in the group for purchasing this policy.
The minimum sum assured for every individual in the group should be ₹1,000. However, this amount can vary from one insurance provider to another. Also, there is no such maximum sum assured that you can pay.
No, the personal habits of individuals in a group do not affect the premiums of this insurance policy. The premiums are only decided based on several factors, like the number of individuals in the group, supplement coverages added with the policy, and nature fo risks covered.
- This is an informative article provided on 'as is' basis for awareness purpose only and not intended as a professional advice. The content of the article is derived from various open sources across the Internet. Digit Life Insurance is not promoting or recommending any aspect in the article or its correctness. Please verify the information and your requirement before taking any decisions.
- All the figures reflected in the article are for illustrative purposes. The premium for Coverage that one buys depends on various factors including customer requirements, eligibility, age, demography, insurance provider, product, coverage amount, term and other factors
- Tax Benefits, if applicable depend on the Tax Regime opted by the individual and the applicable tax provision. Please consult your Tax consultant before making any decision.