Thrilled to have landed that coveted job, you walk to your desk on the first day. Along with other papers from HR sits a letter saying you have been enrolled in a group life insurance policy. You wonder what that is and how it benefits you.
When you buy a life insurance policy for your own life or that of a dependent, it is an individual insurance policy. But when a group of people’s lives are insured under a single master policy, it is group insurance. Typically, employers, banks, credit card issuers, lenders, and even housing society members take a group insurance policy to help their employees, customers or members. The employer keeps the actual insurance policy or the master contract while all those covered get a certificate of insurance.
A group policy provides life cover just as any other policy, but it comes with several other benefits for employees and employers:
- Group life insurance policies are issued either at a very low or no cost to the employee. In most cases, employers pay the premium, making it a perk or welfare measure. When credit card companies or home loan providers offer group insurance to their customers, the premium is paid by the customer, but at a lower rate than individual policies.
- Usually, no medical tests are required. This is a big plus, especially for those who are not covered by insurance and have a pre-existing illness, since taking an individual cover will mean paying a high premium.
- Also, the claims process [SN1] is simpler with a group insurance policy. As an employer, you just have to buy a single group life insurance. It will automatically cover all your employees. So, if a new person joins your company, he or she will immediately be covered by the group life insurance. As an employee, you need only accept the policy from your employer and ensure you have the certificate of insurance.
- Individual life insurance depends on the person’s age and past health issues. Essentially, the insurance company checks the individual’s risk factor. A group life insurance, meanwhile, is dependent on the company’s financial strength, not the employee’s risk. This could turn out to be beneficial to your employees.
- Additionally, the older you get, the costlier life insurance gets. Since the group life insurance is not dependent on the individual’s risk factor, it can turn out to be a cheaper alternative, especially for older employees.
- A life insurance buyer always gets tax benefits[SN2] . In this case, you—the employer—buys the group life insurance for all your employees. So, this can help you avail tax benefits for your company.
- In the case of banks who give savings bank account holders free insurance, it is a marketing tool. For lenders, such as mortgage companies, it protects their loan from default if the borrower dies.
- Lastly, if you, as the employer, buy a group life insurance for your employees, it could give them a sense that the company cares. This could be a good way to motivate your employees and build good will.
How do Group Life Insurance Plans work?
Generally, group life insurance policies are term policies, meaning that a fixed payment, also called the life cover or sum assured, is made if the insured person expires during the policy term but there is no return payment if the policy matures otherwise.
You can nominate a person as the beneficiary who will get the sum assured in case of your unfortunate demise. The amount of insurance cover[SN3] depends on the company and your salary bracket. If you want a higher sum assured than the basic cover given by the company, you may have to pay an additional premium.
Till when does the policy apply?
You are covered as long as you are employed and the employer pays the premium. When you retire/resign, you may have an option to convert the group cover to an individual policy. However, the conversion premium typically is much higher than that for a new individual life insurance policy. So it is advisable to convert only if the premium works out lower than a new policy or if you are otherwise uninsurable. If you decide to convert, you will have to produce the certificate of coverage that your employer had given you under the group insurance policy.
However, group life insurance is not a substitute for individual insurance. If you are between jobs, you may be without a cover. If you decide to start your own business after working for a few years, you might find it expensive to increase your cover as life insurance premiums increase with age.
Related:[SN4] Retirement Plans: Your 3 Step Guide
As you can see, group life insurance is a win-win situation for employees/members and employers/institutions. So if you have the option to enrol yourself or your family members for a group insurance policy, go for it. Just remember it’s advisable to have an individual life insurance policy alongside.