How does Group Life Insurance Cover work?

Life insurance plans, in today’s day and age, are one of the key benefit packages that are offered by employers to their employees. These forms of added benefits by the employers aim to not only compensate the employees for their services but also support the concerned employees’ families in case of emergencies.

Group Life Insurance

What is group life insurance?

A group life insurance policy is a type of policy that provides life insurance coverage to a group of people. This plan offers a standardised coverage to all members within the group irrespective of socio-economic background, age, gender, or profession. For this purpose, groups can be either formal (employee-employer) or informal (non-employee-employer) groups.

The members of a formal group consist of employees of an organisation where the employer purchases the master group life insurance policy. For informal groups, its members are other than employees of an organisation and can be holders of the same credit card, savings account, or members of cultural or social organisations and the like. In both cases, the group administrator purchases a master policy on behalf of the entire group.

How does a group life insurance plan work?

A group life insurance plan is one that benefits more than one member at once. While it may be designed to provide blanket coverage for many beneficiaries, it works in the following manner –

  • First, a master policy is issued to the group administrator after the payment of an initial premium. The group administrator, as described above, can be the employer in the case of formal groups and in other cases, the representative of the organisation buying a policy on behalf of the entire group.
  • Next, the premium paid initially offers a life insurance cover to all the members insured therein for one year from the commencement of the policy.
  • While common coverage is decided at the master policy level, the members of the group can customise the policies based on the features offered by the insurance company. This can be by way of increasing the sum assured or choosing riders like critical illness cover, accident cover, and more.
  • These group life insurance plans are renewed annually by the organisation.
  • The premiums payable under these group life insurance plans are based on the differences in the age, allocation, and the number of employees within the organisation.

What are the features of a group insurance policy?

A group life insurance policy makes affordable and effective life insurance coverage available to the employees of an organisation. Here are some of the noteworthy features of a group life insurance policy:

1. Coverage for a large group of people

The master policy purchased in a group life cover provides coverage to multiple individuals. Here, the insurance company does not have to undertake the tedious process of conducting medical tests and scrutinising the applications. Instead, the employer becomes the principal applicant and the holder of the master policy. Thus, selecting the policy benefits and completing all the necessary formalities is the responsibility of the employer.

2. Affordable life insurance cover

Affordability is a highlight feature of a group life insurance policy. Since the life insurance coverage is spread among many members, the risk for the insurance company is also diversified in that case. Thus, the same policy, which otherwise would be expensive for an individual buyer, is available at an affordable price under the group life insurance cover.

The employers and the employees generally share the premium contribution for such a life insurance policy in a pre-decided ratio. This way, the premium contribution by the employer further makes it an affordable choice of life insurance cover for the employee.

Depending on the term of the employer, eligible employees are automatically covered and those retiring or leaving the employment cease to receive any further benefits. The employment terms and the master policy purchased by the employer define the different employees that are eligible for being covered under the group life insurance policy.

3. Annuity and Gratuity benefits

Some group plans provide employees with the facility to even seek superannuation or retirement plans that can be used as pension or post-retirement funds. Further, these employees are eligible for gratuity as a cover in the case of retirement or resignation subject to the condition of having worked in the organisation for five continuous years.

Now that the meaning and the working of a group life insurance are explained, it is important to consider a group life insurance cover if offered by your employer as it provides substantial coverage at an affordable price point.