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What Are the Advantages of a Group Term Insurance Plan?

As you enter the workforce, you look forward to a rewarding professional journey with your employer. Besides the experience and growth opportunities, the competitive salary and its components will help you as you move ahead in your career. For many decades, employers only believed that cash compensation would be the most important element in the salary structure of employees. However, the changing employee expectations and the need for a holistic approach to compensation has led to employers offering the comprehensive plan as a component of salary.
 

What is a Group Term Insurance Plan?
 

You know that a term insurance policy covers an individual's life by providing the death benefit to the nominee under the policy. Thus, if the policyholder dies during the policy term, his family is protected from financial distress. A term policy covering a group of individuals is a group term plan. In this case, all group members are protected under a single plan.
 

How Does a Group Term Plan Work?
 

 


The rationale of a group insurance plan is that members belonging to a group are exposed to risks that can be mitigated through a common insurance policy. Thus, these plans are widely used to insure the lives of employees of a company. Eligible employees become beneficiaries under the plan, and in case of death during their tenure in the company, their family receives the death benefit from the insurer of the group policy. The employer pays the premium for the group plan, although employees may also choose to pay for additional riders# if they wish.
 

Besides being an important employee welfare component, the group plan is beneficial to the employer as the premium paid is a  tax*-deductible expense. Further, the premium cost is much lesser than the regular life insurance policies and therefore is a cost-efficient tool for keeping enhanced employee morale.

 

What Are the Advantages of a Group Life Insurance Plan?
 

In recent years, non-cash salary components have become a significant element for attracting and retaining good employees. One of these is group term insurance. A major advantage is that both employer and employee can benefit from this plan. Let us see what are the benefits of group term life insurance.

 

    Employer:

  • The employer can protect employees' families from financial dislocations if the employee dies in service. Often, the group insurance plan funds are the first to arrive for the grieving family. Thus, the plan can support the employee's savings or insurance policies.
  • As mentioned earlier, group insurance can be offered as a perquisite for high net worth employees or those in the higher tax* bracket.
  • Alternatively, for employees who are at the early stage of their careers and may not have taken adequate coverage yet, the support of the group term plan could be substantial.
  • An employee group insurance plan can protect those engaged in hazardous professions and thus counter the enhanced risk or pre-existing factors, such as genetic disorders.
  • As the premium is lesser and tax*-deductible, it is lesser than the loss that would arise if the employees were not available to perform their jobs.
  • Some employers use a group insurance policy as a tool to provide for other statutory dues like leave encashment, superannuation, gratuity etc. The less premium and the long tenure help in better financial management of outflows on the above dues.

    Employees:

  • Employees can get additional coverage besides their personal policies at a much lesser or almost nil cost.
  • Employees can also request their employers to match the coverage under the group term plan towards their loan liabilities such as a home loan, car loan etc. This will help their families get relieved of the burden of paying those loans as the funds from the group plan can be utilized for that purpose.
  • The amount of death benefit received under a employee group insurance plan is tax* exempt under Section 10(10D) of the Income Tax Act.
  • Employees can choose additional riders# for critical illness, disability, and other situations to achieve enhanced coverage under the plan.
  • There is no separate medical check-up for employees while joining the plan.
  • All members of a group are entitled to the same extent of coverage.
     

How Do Employee Group Insurance Plans Work?
 

The main reason employee group insurance plans are popular is the low cost and the systematic approach to building a large corpus. For example, the employer can choose the TATA AIA Group Protection plan, in which the funds can be invested in up to five different funds so that differential amounts can be accumulated according to the employer's requirement.
 

For this, the employer should first determine the expected outflows under the employment contracts at any given point in time. Accordingly, the premium is computed and paid. The amount is invested in different funds, such as fixed income for regular returns. The fund value is accumulated in the form of accretion to units.
 

On the employee's death, two heads of payments are made: the sum assured and the accrued fund value attributable to the employee. If the employee were to retire or resign, the accrued value related to the amount due under the employment agreement would be paid. The balance of units is adjusted to reflect the fund balance. As new employees are added, the fund value changes again.

 

Conclusion
 

Employers prefer group term insurance plans for two important reasons: to provide immediate relief to employees through a death benefit to the nominees of employees who die while in the service of the company and to have adequate funds to pay the statutory obligations that arise under the employment contract with employees, such as gratuity.
 

In addition, the funds invested under the policy are linked to different funds to achieve capital appreciation and regular returns. In this manner, the employer is freed of unnecessary stress on their financial management. The employees benefit under the group plans as they provide an additional layer of protection.

 

L&C/Advt/2023/Feb/0438

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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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Disclaimer

  • Insurance cover is available under the product.
  • The products are underwritten by Tata AIA Life Insurance Company Ltd.
  • The plans are not a guaranteed issuance plan, and it will be subject to Company’s underwriting and acceptance.
  • For more details on risk factors, terms and conditions please read 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 do 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.