Is the group term plan provided by your employer enough for you?

3-June-2021 |

Many of us working in corporate offices or other large organizations benefit from a group life insurance or medical insurance cover provided by the employer when we start our journey with the company. This often results in satisfaction and peace of mind as we are covered under medical insurance or life insurance. This is why many corporate employees decide not to buy medical insurance or life insurance independently. No wonder we don’t want to spend extra money for the same benefit we are entitled to get from our companies.

Still, a question remains. These group term plans provided by our employers, are these really enough to cover our needs and take care of the financial requirements of our dependents or family in our absence? Also, are these capable of catering to the financial requirements if there is a medical emergency, which is more expensive than the assured sum provided by the employer under the company’s medical insurance policy?

For some people, the answer might be yes. If we introspect thoroughly, it might allow us to think better and opt for a separate medical insurance or life insurance policy that would take care of our financial needs and the needs of our loved ones in a more efficient way when required.

Since you are covered during your tenure with a particular company, there are advantages of being insured by a group term policy provided by the employer in collaboration with specific insurance companies. And there are certain disadvantages as well.

Let us take a close look at the disadvantages.

Group term plans provided by the employer are not customized

The employer-provided medical insurance or life insurance policy is meant for group employees, not for specific individuals. The group term policy provided by the employer is based on the cumulative risk of the group, and it does not consider individual needs. In short, the employer-provided group term medical or life insurance policy is not customized to one’s individual needs, as the plan is based on an employee’s designation, his/her cost to the company, and role.

Let’s take an example to understand this better. An employee with a single child and an earning spouse might require a lower sum as a cover amount than an employee who has two or three children and a dependent spouse who does not earn. Now, the insurance cover provided by the employer covers one child and spouse as per the terms and conditions. While the group term plan might be sufficient for the first employee, it might not be enough for the second employee. Hence, the uniformity of the group term plan might not serve every insured person’s financial requirements as it is not customized.

The term policies also vary depending on factors such as age, income status, savings, sources of income, the number of dependent family members, etc. Thus, a separate individual plan is always recommended, which can financially help an insured over and above the group term policy. Also, an individual medical or life insurance policy comes customized, depending on factors such as the insured individual’s financial situation, savings, monthly expenses, liabilities, and health conditions. This can serve as the primary policy, while the group term policy can be a backup.

Job change or job loss – Reason to opt for individual term insurance plan

The job market has become volatile, especially due to the economic crisis prompted by the Covid-19 pandemic. In the private sector, individuals often change their jobs for various reasons such as better opportunities, starting a new venture, sabbaticals, etc. Apart from that, there could be a job loss because of changes in management policies, retrenchment, or restructuring.

In such a situation, the employer-provided group term insurance policy will be void for the individual. In cases of job change, the new company might not offer a group term insurance policy to its employers. Also, job loss could bring worries as things are too uncertain nowadays. This is why an individual should opt for a medical insurance or life insurance policy separately. Such policies are much safer as they provide cover to the individual for the entire term, irrespective of their employment status.

Tax benefits on term insurance policies

Employers treat the premiums on group term insurance plans as a business expense and deduct the amount from the employee’s total cost to the company or income. Also, this premium paid for the group term policy does not offer tax benefits. However, premiums for individual term insurance policies are eligible for tax benefits under 80C, and the maturity benefits too are covered under 10(10D). A person paying the premium for a life insurance policy may also claim a deduction under Section 80C subject to maximum limit of Rs. 150,000/- a year. The sum assured when paid on maturity, surrender, or in the case of death is exempt from tax for the receiver under Section 10 (10D) of the Income Tax Act, 1961. Subject to fulfilling conditions as specified therein.

A group term policy does not require a medical test

The group term policies provided by employers do not require medical tests. On the other hand, an individual term plan requires you to undergo a medical test. However, it also comes with the flexibility to determine your life coverage, add riders, choose a suitable period of coverage, etc. Hence, an individual term insurance policy enhances the safety net of an insured.

A group term plan cannot be endorsed to MWPA

Group term plans cannot be endorsed to Married Women Property Act (MWPA) 1874, while the individual term life insurance policy can be endorsed. If a term insurance policy is endorsed under Sections 5 and 6 of MWPA, the wife and/or children of an insured person get exclusive rights over the maturity and survival benefits of the life insurance policy. They also get immunity from creditors and other lenders.


Should I stick to group term plans only?

Sticking to only the group term plan is not advisable as it does not provide enough cover to an individual in an emergency. An employer’s term insurance policy’s sum assured is based on internal calculations, and it is influenced by the average risk. On the other hand, you need coverage based on your financial needs. It should consider the inflation-adjusted monthly expenses over a term.



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