Life insurance plans have been enhancing the protection and coverage options to benefit different categories of investors. A group insurance policy is one such option that provides financial protection to a group of people.
What Is A Group Life Insurance Plan?
A group life insurance policy is a type of life insurance plan that provides financial protection to the families of the members of a group in the event of their unexpected demise. It is a single product that extends life insurance coverage to the entire group. It applies to employer-employee relationships, such as business organisations, and non-employer-employee relationships, such as welfare associations. The objective of forming the group should have a meaningful purpose apart from requiring life insurance coverage.
Benefits Of Group Life Insurance
Purchasing the group life insurance plan is beneficial for the group leader and the members of the group for the following reasons:
- Single coverage - The group life insurance death benefits apply to every single member of the group. Therefore, every member is a beneficiary of the life insurance coverage under a single common life insurance plan. The coverage is common irrespective of factors such as the members' age, gender, lifestyle, etc.,
- Financial protection to the members' families - The group term life insurance benefits the families of the members in the group by providing the death benefit to the nominee in the event of the unexpected death of the member. The family can use the lump sum to reduce their financial burden in the absence of the earning member of the family.
- Affordable - As the coverage is extended to a group of people, the premium becomes increasingly affordable. Therefore, it is accessible for people irrespective of age, gender, socio-economic status, lifestyle, etc. And suppose an employer provides the group life insurance policy as an employment benefit. In that case, the employer generally pays the entire or the major portion of the premium for the insured employees.
- Gratuity and superannuation benefits - The employer can purchase group insurance based on a gratuity scheme to provide gratuity benefits to the employees based on their years of service in the organisation. On the other hand, group insurance based on superannuation benefits helps the employer accumulate funds to provide for the employees on their retirement.
- Credit protection for lenders - Group insurance policies provide financial protection to lending agencies and bankers. If the borrower or the debtor fails to repay the loan, the insurance plan will cover the loss suffered by the lenders.
- Default coverage - The coverage for a new employee is ensured when he joins the organisation by default when the respective employer makes the required additional payments if necessary.
- Employee retention - One of the most important group life insurance benefits is employee retention. When group life insurance is provided as an employment benefit, it increases the morale among the employees, making them feel more secure and reducing the employee attrition rate.
- Hassle-free process for the members - The employees or the members are not generally required to undergo a medical screening process to avail of the group life insurance benefits. In addition, the claim settlement process for the nominee based on the group life insurance coverage is simple and hassle-free compared to purchasing individual life insurance plans elsewhere.
- Tax* benefits - The premium paid by the employer for the benefit of the employees is considered a business expense under Section 37(1) of the Income Tax Act, 1961. And if the employee contributes to the premium, the payment will qualify for a tax* deduction under Section 80(C). Furthermore, the life insurance plan payouts will qualify for a tax* exemption under Section 10(10D) of the Income Tax Act 1961.
- Experienced fund managers - Experienced fund managers extend their help to employers by providing the benefits of group life insurance plans such as gratuity, superannuation benefits, etc.
Features of Group Life Insurance
The group life insurance benefits are based on certain features that define the terms and conditions of the policy.
- The master contract - The employer or the group organiser will purchase the master contract in a group life insurance plan and will be responsible for making the premium payments regularly. The premium will be based on the number of members and the coverage amount. If the number of members increases, there will be a corresponding increase in the premium. The master contract will be issued to the sole policyholder detailing the persons covered, terms and conditions, and the benefits of the group life insurance.
- Contributory and non-contributory insurance - If the group insurance plan is provided as an employment benefit and sponsored by the employer to the employee, there will be no financial requirement from the employee, and it is referred to as the non-contributory group insurance plan. On the other hand, in a contributory group life insurance plan, the employee will have to pay a nominal amount which might be a small proportion of the premium, and the employer will pay the remaining amount.
- Coverage period - The life insurance coverage extends to the members until they are part of the group and ceases to exist after they leave the group, like the employee post-retirement in an organisation.
Group life insurance plans help secure the members and their families and provide financial protection. It applies to the employer-employee and non-employer-employee relationships, and benefits vary based on this distinction. The group insurance plan provides wider financial coverage to the group members. It helps to increase the morale among the members and increase the productivity of the purpose of the group. In addition, it is extremely affordable, simple, and easy to manage.