Group term life insurance refers to a life insurance plan where the coverage is provided to multiple individuals or a group of people under a single plan. The group term plans aim to offer financial protection to the nominee or the beneficiary in case of the death of the covered individual during the policy term.
The most common example of group term life insurance is when a company provides term insurance to all its employees under a single plan or contract. The contract is given to the employer who in turn offers coverage to their employees. These plans also have a master policyholder, who acts as a central administrator on behalf of the members of the group, which is the employer in this case.
As compared to individual term insurance, group term life insurance is relatively inexpensive. It is to be noted that the group term coverage is in force till the time one’s employment is not terminated or till the policy term ends. At this time, the insured has the option to convert their group coverage to an individual policy if they are planning to leave their existing employer. However, this conversion tends to be much higher than premiums for policies available to individuals.
How Does Group Term Life Insurance Work?
If we continue with the above example of employer-employee group term insurance, then the employer being the master policyholder issues the sum assured coverage to their employees through the one master policy. The master policyholder decides the amount of sum assured (life cover) which can be done on the basis of:
Flat Cover: Offering similar life cover for all the employees.
Graded Cover: Life cover is given according to the hierarchy levels of the company.
In the case of formal groups like a company, the sum assured is either linked to the member’s loan amount or the employee’s salary. If linked to the salary, then the life coverage gets equal to a multiple of the annual salary. The amount of life coverage is generally equal to one or two times your annual salary. Supposedly, if a member has an annual salary of INR 5 lakh and the multiple considered is two, then the life coverage amount would be INR 10 lakh.
Generally, the employer pays the entire amount of the premium, but in some cases the maximum part of premium payment is done by the employer and the rest is deducted from the employee’s salary. The premium amount is not the same and depends on factors such as size of the organization, number of employees covered, average age of the employees, etc.
There is also the option of adding the riders to the policy such as accidental death, critical illness and terminal illness which enhances the coverage of the pure term insurance policy. One can also select the option of settling the home or car loans of the employees, if they lose their life.