What is Group Life Insurance?
Life insurance coverage for a group acts as a wide umbrella covering a group of individuals. The group can have any numbers of members. A pre-requisite for buying a group insurance plan is that the group must have something in common. A group life insurance can be purchased for employees of an organization, members of a club/association, a group of depositors of a bank etc. Generally, the cost of buying group life insurance is lesser as compared to the cost of buying individual life insurance for each person. Ergo, group insurance policies are quite popular among companies because it makes their employees feel financially secure. Almost all the life insurance companies in India have formulated GLIS i.e. group life insurance schemes.
Why Buy Group Life Insurance?
As per the Employee Provident Fund Organization, it is mandatory for employers to provide insurance coverage to their workforce according to the Miscellaneous Provision Act, 1952. Thus, many private organizations now provide affordable insurance coverage to their employees.
Features of Group Life Insurance Plans
- Economical– A group life insurance plan is quite economical as compared to an individual life insurance plan. Group life insurance plans are preferred by employers in order to offer life insurance coverage to their employees.
- Convertibility– While a group life insurance plan ceases to exist after employment termination of an employee; it can be converted into an individual life insurance plan.
Note- Once a group life insurance plan has been converted into an individual life insurance plan, the premium might be increased as per the insurer’s discretion. That being said, the discounted premium that comes with the group life insurance policy will not be applicable once an employee decides to leave the group.
- Incentive– When an employer provides group life insurance coverage to its employees it may act as an incentive for the employee and increase productivity. Generally, to attract depositors, banks club schemes like group life insurance plans into their savings or fixed account products.
- Security-Net– A life insurance plan can be expensive and insurance providers often formulate individual insurance premiums on a case basis. During such times, medical history, lifestyle etc. can cost an individual and he/she might end up being denied the insurance coverage. That being said, a group life insurance plan acts as a safety net for all the employees of an organization.
- Master Certificate– Generally, an employer buys the group insurance plan, ergo it retains the member certificate or master copy of the insurance plan. On the other hand, group members are provided with an insurance certificate. Just like individual policies, covered members can nominate a beneficiary who will receive benefits in case of the untimely demise of the insured.
- Constant Flow– The insured members enter/exit the group insurance plan as per their association with a company or group. The constant flow keeps updating the group members.
Types of Group Life Insurance
Life insurance plans offered by either an employer or a large-scale entity such as an association or labor organization to its employees/workers or members are known as group life insurance plans. Typically, group life insurance is offered as an employment or membership benefit.
For an organization, purchasing life insurance plan en mass coverage through an insurer is economical. If an organization were to buy individual insurance policies for its employees, the premium would increase drastically. Depending on the policy terms and conditions, those enjoying coverage i.e. employees or members may or may not have to pay a share of the premiums in order to enjoy the policy benefits. Alternatively, they may opt to share costs and a specific portion of the premium will be deducted from their salary.
Group Term Life Cover
Most of the group policies offer term life insurance cover. This plan comes with annual renewability which allows the insurance company to enhance the policy premium on an annual basis.
Group Permanent Life Cover
As the name suggests, a group permanent life insurance plan comes with the validity of a lifetime. It is less common for normal group insurance plans to come with coverage spanning the insured’s life.
Three Different Types of Group Permanent Life Insurance
1. Universal Life Cover
As per a universal life insurance plan, the insured has the facility to avail loans or invest in a savings instrument.. A Group Universal Life Cover also offers flexible premium payment options and is eligible to earn dividends. The amount of dividend is decided by the management of the company. A group universal life policy comes with the same features of an individual universal life plan but for a group.
2. Group Ordinary Cover
Under this plan, the cash value is accumulated. As per the plan terms and conditions, the cash value may or may not belong to the insured i.e. employee.
3. Group Paid-Up Cover
As per this plan, term cover and whole life cover are combined. Here is the premium structure of this plan.
The employer bears the premium for the term component and the employees bear for the whole life component of the plan. When an insured is no longer a part of the company, the employees become the policy owner.
Group life insurance is formulated to offer life insurance coverage to a group of specified people within a single master plan. A group life insurance plan can be purchased for a group of people with a common interest irrespective of its size (small or big).
A group life insurance plan extends insurance coverage to anyone regardless of their age, profession, gender, social background and etc. Group insurance plan isn’t restricted to employer-employee groups and can be extended to various homogenous groups as well.
The Function of Group Life Insurance Plans
Group life plans are like individual life plans. They can be classified based on their basic functions mentioned below.
- Gratuity- Upon completion of 5 years in a company, employees get a gratuity benefit. A group gratuity insurance plan offers an investment option to an organization in order to generate funds which can be later used to pay the entitled gratuity amounts.
- Superannuation- A group superannuation plan acts as a retirement policy that accumulates funds over the employment term of an employee and which is released at the time of retirement.
- Term- In case of the sudden demise of any group member, a group term plan provides the assured sum to the dependents of that particular group member.
- Savings-A group savings insurance plan acts as a savings instrument for the group members to accumulate wealth as well as life insurance coverage.
- Credit protection- A credit protection insurance plan is offered by banks/ lenders. The policy covers the outstanding loan amount (if any) that is post the untimely demise or disability of the insured person.
How Much do Group Insurance Policy Costs?
The insurance company that offers group insurance coverage evaluates the risk on the basis of the size of a group and formulates insurance premium based on the risk calculation of the group. The premium can be paid in two ways.
- The full premium amount is borne by the organization or group owner that buys the group life insurance plan for its employees/members.
- The organization or group owner can choose to pay a part of the insurance premium and the remaining amount is borne by the group members. This option is preferred by most companies. Additionally, it is ideal for someone who might have to pay for an enhanced insurance cover as per the associated risks to his/her profile.
As a group life insurance policy covers all the types of risk profiles in the same master plan, clubbing various charges under one plan, usually insurance companies charge a reduced insurance premium as compared to an individual life insurance plan.
Benefits of Group Life Insurance Plans
Here are the various insurance benefits of group insurance plans.
- Default Insurance Coverage- Group life insurance plans offer auto coverage to group members as long as they’re part of the group or employees of a particular organization. It comes with a basic insurance coverage for a group. Some group insurance plan provide insurance coverage to covered members even if they are no longer part of the group.
- Employer Benefit-Typically, an organization that has opted for a group life insurance plan enjoys tax benefits. Some group insurance plans enable group members to avail tax benefits as well.
- Ease of Payment:The premium of the life insurance plan is paid on time because it’s automatically deducted from the insured employee’s salary. It ensures continuity of insurance coverage until the time the employee stops being a part of the group insurance plans.
- Employee Welfare- A group life insurance plan acts as an excellent welfare plan for employees. Additionally, it acts as an employee retention tool, as the insurance coverage is provided to the employee as well as his/her family.
- Excellent Fund Management- This benefit is applicable to group gratuity policies and superannuation policies. It is quite possible that in a particular year, the payable gratuity to an employee could be higher than expected, resulting in a transfer of additional. To make the most this situation and create a fund corpus, experienced fund management service from the insurer can be of great help.
Note- One must not have any assumptions regarding group life insurance coverage. Though there are various benefits offered by a group insurance plan, there are some cons that one must keep in mind before opting for it.
The benefits offered by group life insurance policies such as life coverage, superannuation, savings plan etc., generally, cease to exist in case the group member is no longer a part of the insured group. The insurance benefits are offered as long as a member is a part of a group.
For instance, Mr. Samarth developed high BP 4 months after joining his new job. Since the group insurance coverage offered by his previous company was no longer applicable to him it became expensive for him to purchase an individual life insurance plan. While the plan options and features offered by life insurance plans are limited, an insurance company might not provide you full insurance coverage on the basis of your pre-existing health conditions when you apply for an individual life insurance plan.
The Difference between Individual Life Insurance and Group Life Insurance
Buying an individual life insurance policy often offers a more extensive coverage to the insurance buyer and financial aid to his/her dependents. Whereas in a group insurance plan a group of people is covered under a single master insurance plan. Usually, employers, credit card issuers, banks, lenders, housing society members buy group insurance plans for their employees/customers/ members. The insurance buyers i.e. employer keeps the issued insurance policy and the covered members get an insurance certificate.
The Benefits of Group Life Insurance for Employer and Employees
Here are the insurance benefits offered by a group life insurance plan for employers as well as employees.
- Group life insurance plans come at a low premium or no premium at all to the employee. Employers may choose to pay the insurance premium from their own pockets. This makes group life insurance a perk/welfare measure.
- When the companies dealing with credit card/ home loans offer group life insurance to their clients, the premium is borne by the client. The premium is drastically reduced as compared to the premium of individual life insurance policies.
- Usually, no medical screening is required to buy group life insurance. This is a relief, particularly for employees who don’t have life insurance, but have a pre-existing disease.
- The claims process for group life insurance plan is very simple. An employer needs to purchase a group life insurance plan. By default, it will cover all the employees. In event of a new joining, the new employee will be covered immediately by the group life insurance plan. All he/she has to do is accept the plan offered by the employer and make sure he/she has the insurance certificate.
- In case of an individual life insurance, the insurance buyer’s age and pre-existing illnesses matter a lot. The insurance providers analyze the risk factor associated with the insurance buyer. On the other hand, a group life insurance plan depends entirely on the financial strength of a company, instead of the employee’s risk. This is the biggest benefit of a group life insurance plan.
- Thanks to the age factor, the older one gets, the more expensive it gets to buy life insurance. As mentioned above, the group life insurance plan isn’t offered on the basis of the risk factor of an individual, so it’s a cost-effective alternative for employees.
- Life insurance comes with tax benefits. The employer i.e. insurance buyer can avail tax benefits. Some insurance providers offer tax benefits for the members covered in a group insurance plan.
- There are some banks that offer free life insurance to its savings account holders. It’s an excellent marketing tool.
- For employers, buying group life insurance coverage for their employees is a win-win deal. It gives their employees the feeling that their organization cares for them. It motivates the employees and builds company’s goodwill.
How Does a Group Life Insurance Plan Work?
Mentioned below is the functioning of a group life insurance plans.
- The group administrator makes an initial premium payment cover for all the group members for a year of the policy duration.
- After paying the insurance premium, the group administrator gets the master plan.
- The members of the group are offered with the option to select the assured sum. This amount can be a provided as a one-time payment or it can be linked to their salary account, loan account, etc.
- On the basis of alterations in the group size and age of the group members, the group life insurance premium is computed.
- Group life insurance policies come with a yearly renewability.
The Validity of the Group Life Insurance Plans
An employee is covered by a group life insurance plan as long as he/she is employed and his/her employer pays the premium. In case an employee resigns/retires, he/she can convert the group insurance plan into an individual life insurance plan. Typically, the conversion premium is higher as compared to buying a fresh individual life insurance plan. Insurance experts recommend converting the policy in case the premium is economical, otherwise one may buy a fresh insurance plan. In case the insured decides to convert the plan, he/she will have to provide the coverage certificate that his/her previous employer has provided him/her under the group life insurance plan.
That being said, a group life insurance plan isn’t an alternative for an individual insurance plan. In case he/she changes jobs, he/she would be deprived of insurance coverage for some time.
If an employee decides to start his/her own business venture, buying a fresh life insurance plan would be expensive as life insurance premiums increase as one age.
How to Decide Insurance Coverage Under the Group Life Insurance Plans?
The employer can opt for different insurance calculations to decide the coverage amount for their employees. Under group insurance plans, employees are classified into different classes. The various classes offer different insurance coverage and benefits.
Mentioned below are the various benefits schedule that is used to decide insurance coverage.
- Earnings Schedule- Under this method, employees are classified into different classes on the basis of their salaries, exclusive of bonus. It’s the most common method used to compute the insurance coverage for a group life insurance plan. The insurance coverage is determined based on the percentage/multiple of the employees’ annual salary. Higher multiples can be provided for the executive class.
- Flat Benefit Schedule- Under this method, absolutely no significance is given to the position and salary of the employees. The entire workforce is considered equal and classified under 1 category. This way, all the employees receive same benefits.
- The Length of Service Schedule- This method is used by very few organizations to compute the benefits of group insurance. Under this category, the benefits are computed by classifying the employees on the basis of the number of years an employee has worked with the organization.
- Combination Schedule- It is a perfect blend of the schedules i.e. earning schedule and flat benefit schedule. Earning schedule can be used to compute the insurance benefits for some of the most valuable employees of a company, whereas a flat schedule can be used for the employees who work on an hourly basis.
Group Life Coverage Decisions – Illustration
XYZ Private Limited is a manufacturing company which has 2 types of employees.
- Hourly Basis – These employees work in a manufacturing factory on per hour basis. Such employees are paid basis on the number of hours they work in a month.
- Full-Time Employees- These employees work in departments such as marketing, sales, research, accounts, & other operations of the organization. These employees work on a full-time basis and are paid pre-decided salaries & incentives (if any).
The management of XYZ Private Limited has decided to purchase a group life insurance plan for their employees regardless of this employment category. So, in order to decide how much life insurance cover is needed, they divided the employees into 2 groups:
- Permanent Employees– It includes the employees who are responsible for operations.
- Temporary Employees- It includes the employees who are responsible for the production i.e. working in the factory.
On the basis of their position in the organization, permanent employees are further divided into three classes:
- Senior Level
- Middle Level
- Entry Level
To the entry level, the management assigned multiplier 1. They assigned multiplier 2 to the middle level & multiplier 3 to the senior level. The coverage was decided by applying the multiplier to the average salary of each level.
For temporary employees, flat rate schedule was used. The same benefit was offered to all the employees regardless of the number of working hours.
Group Life Insurance Plans by Top Life Insurance Providers
Here are group life insurance plans offered by top life insurance providers.
Edelweiss Tokio Life Insurance – Group Life Protection Plan
Edelweiss offers a group life term Insurance plan which can be renewed on a yearly basis. The plan is formulated to offer financial stability to the dependents of the covered group members. The group is secured against any unpredictable situation such as the sudden demise of the insured or in case insured contracts a terminal illness. Group insurance policy by Edelweiss life insurance comes offers a master plan. Here are the plan details.
|1.||Age of Entry (as per last birthday)||16 years – 80 years|
|2.||Maximum age of maturity (as per last birthday)||81 years|
|3.||Policy Duration||1 year (renewable annually)|
|4.||Minimum No. Members||50|
|5.||Minimum Assured Sum||Rs. 1,000 for each member|
|6.||Maximum Assured Sum||No limit as such|
|7.||Frequency of Premium Payment||Monthly, quarterly, semi-annually and annually.|
|8.||Available Add-on Riders||
a. Edelweiss Tokio Life- Group Accidental Total and Permanent Disability Rider (147B008V02)
b. Edelweiss Tokio Life- Group Accidental Death and Dismemberment Benefit Rider (147B011V02)
c. Edelweiss Tokio Life- Group Total and Permanent Disability Rider (147B007V02)
d. Edelweiss Tokio Life- Group Accidental Death Benefit Rider (147B010V02)
e. Edelweiss Tokio Life- Group Hospital Cash Benefit Rider (147B012V02)
f. Edelweiss Tokio Life- Group Critical Illness Rider (147B013V02)
g. Edelweiss Tokio Life- Group Extended Critical Illness Rider (147B009V02)
|9.||Death Benefit||Yes, 100 percent of the assured sum is paid as a lump sum.|
|10.||Terminal Illness Benefit||Yes. In case the opted assured sum equals to 50 Lakh and above, terminal illness benefit paid in lump sum.
In case the opted assured sum is less than Rs. 50 Lakh, the sum assured is paid upon the diagnosis of a covered terminal illness.
|11.||Maturity Benefit||No benefits|
|12.||Surrender benefits||For Non-Voluntary Group
Surrender value = Unexpired Risk Premium – Max (Claims* – Expired Risk Premium , 0)
For Voluntary Group
Surrender value= Unexpired Risk Premium
Reliance Nippon Life Insurance
Reliance Nippon life traditional group employee insurance is a non-par variable and non-linked, fund based, life insurance product. The plan offers benefits such as leave encashment, gratuity benefit etc.
Here are the features of Reliance Nippon Life Traditional Group Employee Benefit Plan.
- It offers professional fund management services.
- It offers guaranteed* returns on investment with additional protection.
- It comes with hassle-free scheme administration.
- It offers tax benefits according to applicable tax rules.
Here are the details of Reliance Nippon life traditional group employee.
|1.||Group Size||10 members||No limit as such|
|2.||Age of Entry||18 Years||79 Years|
|3.||Age of Maturity||19 Years||80 Years|
|4.||Assured Sum||Rs. 1,000 for each member||No limit as such|
|5.||Premium||Rs. 50,000||No limit as such|
|6.||Premium Frequency||Monthly, quarterly, yearly and half-yearly|
|7.||Policy Duration (Years)||1 year (renewable annually)|
ICICI Pru Group Term Plus
|1.||Coverage||For formal groups as well as informal groups.|
|2.||Minimum Number of group members||For Formal Groups- 10 members
For Informal Groups- 50 members
|3.||Minimum age of entry||15 years|
|4.||Maximum age of entry||79 years|
|5.||Premium (policy level)||Rs. 10, 000|
|6.||Minimum sum assured||Rs. 5,000 per group member|
|7.||Policy term||1 year. Though, it can be renewed on an annual basis|
|8.||Frequency of premium payment||Monthly basis, quarterly basis, semi-annually basis and annually basis.|
Max Life Insurance – Group Super Life Premier
Here are the plan features.
|1.||Plan Type||Non-linked group term insurance policy|
|2.||Plan Coverage||All group members in compliance with the Underwriting Policy
|3.||Minimum Age of entry (as per last birthday)||18 years|
|4.||Maximum Age of entry (as per age last birthday)||For employer-employee groups– 74 years
For affinity groups– 64 years
|5.||Maximum Cover Ceasing Age (age last birthday)||For employer-employee groups-75 years
For affinity groups- 65 years
The age of maturity is determined on plan anniversary.
|6.||Policy Term||For an employer-employee groups-1 year and the plan can be renewed annually upon the premium payment.|
|7.||Minimum Group Members||For employer-employee groups
For non-employer employee groups
|8.||Maximum Group Members||No limit as such.|
|9.||Min. Face Amount||On scheme basis- Rs. 1 Lakh
On member basis- Rs. 5,000
|10.||Max. Face Amount||No limit as such, though it’s subjected to the approval of board underwriting the policy.|
|11.||Minimum Insurance Premium||Per scheme, Rs. 5 thousand on an annual basis subjected to assured sum per member. The amount is exclusive of
a. Taxes/cess as levied by Government,
b. Rider premium (if any)
c. Additional mortality premium (if any)
|12.||Maximum Premium||Maximum premium is subjected to the approval of the board underwriting policy.|
|13.||Riders Available||1. Max Life Group Accidental Death Benefit Premier Rider
Minimum age of entry – 18 years
Maximum age of entry –
Maximum coverage ceasing age-
However, coverage ceasing age would be decided as per the policy renewal date after/coinciding with 66 years of age.
Rider Duration– 1 year
Covered Event– accidental death
Min. face amount – Rs. 5 thousand.
It’s a 1-year group rider which can be renewed.
|Max Life Group Accelerated Terminal Illness Rider
Min. age of entry- 18 years of age
Maximum age of entry – 74 years of age
Maximum coverage ceasing age-
75 Years as on plan renewal date
Rider Duration– 1 year
It can be renewed as per requirement.
Covered event-Terminal Illness which is subject to a maximum of 50 Lakh Rupees.
Rider assured sum– Equal to base plan’s death benefit which is subject to a minimum of 5 thousand Rupees for each member and maximum of Rs. 50 Lakh for each member. Any decrease/ increase in the assured sum of a rider would depend on increment or decrement (if any) in the assured sum of base plan.
|Max Life Group Critical Illness Additional Benefit Rider
Minimum age of entry- 18 years of age
Maximum age of entry- 65 years of age
Maximum coverage ceasing age-
66 years of age
Kotak Term Group Plan
Here are the plan features.
|1.||Who is covered?||· Individual borrowers, individual investors, co-borrowers, co-investors can be covered.|
|2.||Group Size||Minimum Members-50
Maximum Members- No limit as such.
|3.||Age of Entry||Minimum- 18 years
Maximum- 74 years
|4.||Basic assured sum||Minimum-
1 thousand Rupees per member
Maximum- No limit as such
|5.||Policy Duration||1 year.
The plan can be renewed on an annual basis.
|6.||Mode of Policy Payment
|· Monthly, quarterly, half-yearly and yearly.
|7.||Modal Factor of Premium||Monthly- 8.75 percent
Quarterly- 26 percent
Half-Yearly- 51 percent
Annually- 100 percent
Group Life Insurance FAQ’s
What’s a group life insurance plan?
Ans- A group life insurance plan offers collective insurance coverage, rather than individual insurance coverage, to the members of a group. Typically, employers offer group life insurance coverage to their employees in accordance to the Employees’ Provident Fund & Miscellaneous Provision Act, 1952.
A group can include individuals sharing a common interest such as employees of the company, society members, club members, bank account holders, shareholders etc.
Is group life insurance plan expensive?
Ans- Generally, group life insurance premium is lower as compared to the premium for an individual life insurance policy.
Are there any types of group life insurance plan?
Ans- There are two types of group life insurance plans:
- Contributory group life insurance
- Non-Contributory group life insurance
As per contributory group life insurance policies, the covered group members pay a partial payment/ full premium payment. Their employer might deduct a pre-decided percentage from the salary of the covered employees in order to offer them group life insurance coverage plan.
As per non-contributory group life insurance policies, the covered group members don’t have to pay any premium payment to enjoy insurance coverage under a life insurance plan. An employer paying total life insurance premium for its employees will offer insurance coverage in a non-contributory group life insurance plan.
What are the benefits of having a group life insurance plan?
Ans- Here are the benefits of a group life insurance plan.
- Life Coverage- All members of the insured group enjoy life insurance coverage.
- Renewability- It can be renewed on an annual basis.
- Global Coverage- It offers coverage across the globe.
- Ease of Enrollment– As per requirement, group members can be added/removed.
- Hassle-free Claim Procedure- It offers easy, quick and hassle-free claim settlement procedures.
Are there any type of group life insurance policies?
Ans- Majorly, these variants of group life insurance plans are offered.
- Group term life insurance plan
- Group gratuity plan
- Group critical illness rider
- Group Investment Linked Insurance Plan
- Group Mortgage Redemption assurance scheme
- Group Leave Encashment scheme
What happens after a to a members group life insurance coverage post completion of his/her employment term?
Ans- Generally, group insurance coverage for a member ceases to operate as soon as his employment term is completed. Some insurance providers offer the facility to convert a group life insurance policy into an individual life insurance policy. To avail that facility, one needs to pay the enhanced insurance premium. Afterwards, one has to pay the hiked insurance premium after switching the insurance cover.
What are top 5 group life insurance plans in India?
Ans- Some of the Insurance providers that offer group life insurance in India are – Bajaj Allianz, SBI Life, LIC & ICICI Prudential Life Insurance.