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What is Group Life Insurance? | Group Life Insurance Definition

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Hello Gnees Army,

Good Morning,

Group Health Insurance is a financial contract between the insurer and the specific group (like any organization or company) to secure and cover family members at the event of the employee’s sudden death.

This insurance provides protection against future disasters or any accidents to a large group of people, usually the employees of a company where the employer/group administrator is the policyholder. Over time, companies realising the importance of providing more affordable group life schemes and coverage for employees.

Though it provides a little less coverage and benefits than individual life insurances being it’s almost free. If the employee accepts terms, a small amount deducted on a specific time like monthly basis from his/her salary, depending on the policy. However, today we will know about what is group life insurance and its benefits, importance, eligibility and many more. Here we go…

Group Life Insurance
Group Life Insurance

 Types of Group Life Insurance 

Basically, there are two types of group life insurance. They are –

Contributory: Where members of the group pay the premium partially or in full, to enjoy the benefits of the insurance cover.

Non-contributory: Where group members do not have to pay anything to avail of the benefits of insurance coverage instead it’s paid fully by the employer/group administrator. Of course, this plan creates more brand value.

 Group Life Insurance Policy Features 

It was mainly introduced to provide affordable insurance schemes to individuals. It covers many features like below –

  • Covers a Group of People: Usually, group life insurance policy covers a large number of people under a single policy. The insurers don’t have to go through the long process of form filling like an individual policy.
  • Flexibility: In this policy, the insurers aren’t confined to the group members. Means, as the premium and coverage are based on the number of members, if there is an increase/decrease in the number of members, the premium will increase/decrease proportionately. The excess premium will be returned by the insurance company if there is a drop in the number of employees. That’s why there is no limit on changing the number of an insured person.
  • Affordable: Affordability is another key feature of group life insurance. The employer and the employee both may share the cost of the insurance, thus making it highly affordable for every individual. Only a tiny part of the employee’s salary may be deducted for the premium of the group life insurance.
  • Variety: This insurance offers a number of insurance policies that can be issued according to the employer’s need and expectations. The two main policies are Group Term Life Coverage (the insurer can increase the premium annually) and Group Permanent Life Coverage which is further divided into various other categories.
Group Insurance Benefits
Group Insurance Benefits

 Its Benefits 

  • Term Policy – This is a very significant part of the group life insurance policy. Unfortunately, if an assured/policyholder of the group, dies before the completion of the term plan, the sum promised amount is paid to the nominee of the assurer.
  • Professional Fund Management – The collected premium from employees is handled by experienced professionals. The employee won’t have to worry about the mismanagement of funds as they are in trusted hands.
  • Affordable Premium Payment – The premium amount of the assured may be deducted as a small percentage of their salary. So, the employee doesn’t have to have so much headache to pay the premium compared to the individual plan.
  • Superannuation/Pension –  The amount saved through the Group Superannuation method will be paid to the employee after their retirement.

 In short, How Does it Work? 

The motive behind the group life insurance is to provide financial security to the employee. This ensures that the employees feel secure and have financial stability when are in the company.

There are three cases- either, the employee has to pay a small amount of his or her monthly income as a part of the premium of the policy or, the employer might bear the entire expenses or, both will collaborate. This amount is collected by the employer during the employee works for the company. At the end of the term or in case the employee leaves the job, the sum is paid to the employee.

In case of unfortunate death or retirement, the amount is paid either direct to the employee or the nominee. This assures that employee’s family can have financial support after his/her retirement/death.

 Why it’s important? 

1. Increase Productivity – This policy/insurance gives financial security to the employee. It ensures that the employee gets all the benefits from his job thus, increases employee productivity.

2. Assured payment after retirement – The employee needs financial stability after he or she retires from the job. This insurance gives them this financial coverage, once they successfully finish their working period.

3. Boost Talent and employee retention – The financial security provided by the group life insurance makes sure that the employees are happy in their workplace. This helps the employer attract better workplace, attract more talent and boost existing employee retention.

4. Avail Tax Benefits – The employer can get tax free experience on certain conditions and amount. This is because the premium collected for the group life insurance is not taken as company profit but as a business value.

 Group Life Insurance Plans 

As mentioned above, group life insurance is further divided into many schemes. The coverage depends on the kind of policy that the employer entails.

 Group Term Life Insurance

The nominee of the employee will be paid a lump sum amount, in case of employee’s untimely death. In addition to this, the employee gets regular life coverage benefits.

Group Pension or Superannuation Plans 

Group pension plans are offered by employers to help employees build their retirement secured not only for them but also for their family. This help employees to enjoy a large amount at the time of retirement.

Group Personal Accident Insurance 

It’s very similar to individual personal accident plans. The only significant difference between the term plan and accident plan is that the term plan compensates only in the case of the policyholder’s death. While the personal accident insurance plan pays for the sudden loss of the insured’s earning capacity by covering hospitalisation costs.

Group Mortgage Redemption Assurance Scheme

This add insurance security to the employees that have availed for a loan.

There are also other types of group insurance plans. But above we only focused on widely popular life insurance plans as there are no limitations on it.

What is Group Life Insurance
Group Life Insurance

 Its Demerits? 

The group life insurance covers a large number of benefits as already seen, but there is always the dark side of every coin. There are many scenarios where the group life insurance fails to provide cover or not effective. Here are some –

It May Not be Enough: The group life insurance is a very affordable option to get life coverage when you have low income and not able to invest in personal life coverage. But, here in case, you’re hoping the best that it would be enough, you misunderstood. Group life insurance provides fewer benefits than personal.

The Uncertainty of the Job: It is rare to see that someone stuck to their job for a long time like 10 years or more. Most people tend to change jobs several times till the age of retirement. This will keep changing life coverage plan and there is a high possibility that your next job may not cover the group life insurance. So, it is not a very efficient or long term method of investment.

Don’t Have Control Over the Policy: The employer is part and parcel of the policy. The life insurance offered by the company may not be enough or might not fulfil your needs. Your boss/employer can cancel you from their policy at any time.

In conclusion, it is advised that you have to get personal insured separately rather than group life insurance to get the best of these twos.

Hope you have now clear ideas about what is group life insurance, how it works, what its merits and demerits and so on. Thanks for reading. See you soon!

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