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What Are the Advantages and Disadvantages of Group Life Insurance?

Secure your Employees or Team's Financial Future with Group Term Insurance

Life insurance policies are saviours when uncertainty arises. It financially empowers your family when you are not around, or a permanent disability robs you of your earning potential. The policy is straightforward; if you want more coverage, you must pay more premium. But does this apply to all life insurance products? A group life insurance is an exception, as you have less control over it. 
 

In the following sections, we will go over this insurance product's benefits and drawbacks. But first, let us discuss its meaning and how it works.
 

What Does Group Life Insurance Mean?
 

Group life insurance is a financial product offered by a large or medium-sized company to its employees. A group life insurance policy is less expensive than individual insurance, and some employers provide it to their employees for free.
 

As an employee, you do not have to undergo a medical assessment test to qualify for this policy. Moreover, this type of policy does not require individual underwriting. However, the coverage provided under this policy is lower than that of standard life insurance plans.
 

How Does a Group Life Insurance Plan Work?
 

Group life insurance plans in India are a single contract that covers multiple employees of the company applying for this policy. When the employer applies this policy, the insurer reviews the group composition. It then decides how much insurance to offer to each group member and sets the premium accordingly. Companies invest in this plan to save money that they would have spent on individual plans for each employee.
 

If, as an employee, you wish to increase the amount of coverage, you must notify your employer and pay a portion of the premium out of your pocket. Similar to the standard plan, it allows you to specify the beneficiaries. There is also the option to change or add the beneficiary in the future (coverage tenure). 
 

What are the Features of Group Life Insurance?
 

Some notable features are detailed below.
 

  • The sum assured of group life insurance is determined by the employee's annual income, age, or organisational hierarchy.

  • The group must have a minimum of 25 members to be eligible to purchase this policy, but this might vary depending on the type of group insurance plan.

  • The policy issuance is for one year, but the employer has the renewal option for continued coverage.

  • There is no medical underwriting for group members. The insurer underwrites the coverage by treating the entire group as a single entity based on its nature and composition.

  • In a term group life insurance, there is also the option to purchase riders# such as critical illness and accidental cover. Consequently, doing so will raise the policy premium.
     
Group Life insurance: Pros and Cons
 

Hands Shield Several People to Symbolise Group Life insurance Plan Protection

 

Group insurance has its own set of advantages and disadvantages. If you do not learn about it, you may be jeopardising the future of your loved ones. Let's go over the details one by one.
 

Advantages of Group Life Insurance
 

A group plan benefits both employees and employers. Here is how.
 

For employers
 

  • Low premiums

    Employers are typically responsible for paying group insurance premiums. Any company that wishes to purchase individual insurance for each employee will have to pay more premium. A group plan covers the same number of staff at a lesser cost.

  • Tax* benefits

    Premium paid by the employer towards group insurance is subject to tax* deduction under different sections of the Income Tax* Act, 1961. 

  • Better retention rate

    Group insurance offers mental peace and a sense of security to employees. It allows them to demonstrate their full potential, which increases productivity. Furthermore, it is the best way for businesses to incentivise employees while improving the company's retention rate.
     

For employees
 

  • Default coverage

    When you join a company where the company has purchased group insurance, you get default coverage under this policy. 

  • No prerequisites

    When you purchase individual insurance, the insurer considers various factors such as lifestyle, age, and medical history before providing coverage. Though, this is different from group insurance. You get coverage under the policy without any prerequisites, such as medical screening.

  • Smooth claim process

    Group insurance claims are much easier to file than individual plans. You or your beneficiary only need to submit a few essential documents online, and the claim will be processed post-verification. 
     
Disadvantages of Group Life Insurance
 
  • Limited coverage

    Group insurance offers a limited sum assured. It is usually advisable to have at least ten times your annual income in life insurance coverage so that your dear ones do not face a financial crisis if you are not around. A group plan only covers up to three to five times the annual income.

  • Discontinuation risk

    Group insurance, whether health or life, covers you only while you are a part of the organisation providing coverage. The policy does not cover you if you leave the company to work for another or retire. Given this scenario, it is always preferable to have individual life insurance to protect your loved ones.

  • Limited choice

    Most large corporations work with only one insurance provider. Furthermore, most of the policies offered by employers are term life insurance. As a result, you can only select from a narrow range of life insurance products on the market. You are also not permitted to switch to a different insurer that provides better coverage. Purchasing a policy outside your organisation allows you to select from whole life insurance, money-back plans, and other options.

  • No additional benefits

    Typically, group insurance does not provide customisation benefits. You are not permitted to obtain critical illness coverage or an accidental coverage rider# that your employer did not purchase during the policy purchase or renewal. Moreover, even if you wish to bear a portion of the premium, you may not be able to increase the coverage in some cases.
     
Conclusion
 

Group life insurance is a cost-effective insurance option for both employees and employers. It benefits employers by improving employees' productivity while boosting the retention rate. In the context of employees, it provides life insurance without cost or medical screening.


L&C/Advt/2023/Jan/0028 

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Tata AIA Life Insurance

A joint venture between Tata Sons Pvt. Ltd. and AIA Group Ltd. (AIA),  Tata AIA Life Insurance  is one of the leading life insurance providers in India. We post everything you need to know about life insurance, tax savings and a variety of lateral topics such as savings and investments in this space. You can access and read a host of different blogs, articles and pages at the Tata AIA Life Insurance Knowledge Center or get in touch with us with any queries or questions!

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Frequently Asked Questions

Who pays the premium for the group life insurance plans?

Group insurance plans have a more affordable premium than individual life insurance plans. In some cases, the employer pays for the group life insurance plan, and in other cases, it might get deducted from the salary of the employee.

What are the benefits of a group life insurance plan for an employee?

For an employee, the benefits include a smooth claim process, no medical screening to get the policy, default coverage, and no prerequisites to get the policy. 

Disclaimer

  • Insurance cover is available under the product.
  • The products are underwritten by Tata AIA Life Insurance Company Ltd.
  • The plans are not guaranteed issuance plans, and they will be subject to Company’s underwriting and acceptance.
  • For more details on risk factors, terms and conditions please read the sales brochure carefully before concluding a sale.
  • This blog is for information and illustrative purposes only and does not purport to any financial or investment services and does not offer or form part of any offer or recommendation. The information is not and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.
  • Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.
  • Every effort is made to ensure that all information contained in this blog is accurate at the date of publication, however, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.
  • *Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfilment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Tata AIA Life Insurance Company Ltd. does not assume responsibility on tax implications mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you.
  • #Rider is not mandatory and is available for a nominal extra cost. For more details on benefits, premiums, and exclusions under the Rider, please contact Tata AIA Life's Insurance Advisor/ branch.