What Is Group Life Insurance and How Is It Different from Group Health Insurance?

Group life insurance and group health insurance are both employer-sponsored benefits, but they cover fundamentally different risks. Confusing the two is common; here's the clear distinction and why most employers offer both.

The Core Difference

• Group health insurance reimburses medical expenses (hospitalisation, surgery, treatment) during the employee's lifetime. It addresses morbidity risk.
• Group life insurance pays a defined lump sum to the employee's nominee on death. It addresses mortality risk.

Side-by-Side Comparison

What it covers. Group health: medical expenses including hospitalisation, day-care procedures, pre and post-hospitalisation, maternity, PED from Day 1. Group life: death of the employee from any cause (natural or accidental, subject to policy terms).

Who receives the payout. Group health: the hospital (cashless) or the employee (reimbursement). Group life: the nominee declared by the employee, typically spouse, children, or parents.

Type of payout. Group health: indemnity — reimburses actual expenses up to sum insured. Group life: defined sum assured paid as lump sum.

Typical sum. Group health: ₹2 lakh to ₹10 lakh per family (sum insured). Group life: 2 to 4 times annual CTC, commonly ₹10 lakh to ₹1 crore (sum assured).

Regulator. Group health: IRDAI under general insurance and standalone health insurance frameworks. Group life: IRDAI under life insurance frameworks.

Premium range. Group health: ₹6,000 to ₹15,000 per employee per year for family floater cover. Group life: ₹500 to ₹3,000 per employee per year for sum assured of ₹25 lakh to ₹50 lakh.

Underwriting. Group health: no medical check-up; risk pooled across workforce. Group life: minimal underwriting up to a free cover limit (typically ₹25 lakh to ₹50 lakh); higher sums require medical declaration.

Cover continuity after exit. Group health: ends with employment; portable to individual policy under IRDAI rules. Group life: ends with employment; can be converted to individual term policy with the same insurer in some plans.

Tax treatment. Both group health and group life premiums paid by the employer are deductible under Section 37(1) and not taxable as perquisite for employees.

GST. Group health: 18% GST applies. Group life: 18% GST applies on the risk premium component (not on the savings component, which doesn't apply to pure term group life).

Why Most Employers Offer Both

The two products together provide complete financial protection for employees and their families:

• If an employee is hospitalised: Group health insurance pays the medical bills. The employee returns to work after recovery; family savings are protected.
• If an employee dies: Group life insurance pays a lump sum that helps the family cover loss of income, mortgage payments, children's education, and other financial needs.
• Combined cost: For a typical mid-size company, group life adds only 5 to 15% to the group health premium budget, delivering a substantial increase in employee financial protection.

How Group Life Insurance Works

The mechanics:

• The employer purchases a master policy from an IRDAI-licensed life insurer
• All eligible employees are automatically covered, typically from Day 1 of employment
• Sum assured is usually expressed as a multiple of annual CTC (commonly 2x or 4x)
• Some plans offer flat sum assured tiers (₹25 lakh, ₹50 lakh, ₹1 crore)
• Employees can declare nominees through HR or directly on the insurer's portal
• On claim, the nominee submits the death certificate and policy documents; the insurer pays within 30 days under IRDAI rules

Common Add-Ons to Group Life

• Accidental Death Benefit (ADB): doubles the sum assured on accidental death
• Permanent Total Disability (PTD) cover: pays the sum assured on permanent total disability from accident
• Critical Illness rider: pays a lump sum on diagnosis of listed critical illnesses
• Terminal Illness benefit: accelerates the sum assured payout on diagnosis of terminal illness

Group Life Insurance Sum Assured Guidance

Industry practice for sum assured:

• Conservative: 1x annual CTC, commonly the minimum offered
• Standard: 2x annual CTC, the most common tier in Indian companies
• Strong: 4x annual CTC, common at tech-services companies
• Comprehensive: 5x or higher annual CTC, common at senior leadership tiers or in BFSI

Some employers offer tiered sum assured by job grade, with senior employees receiving higher multiples.

How Plum Combines Group Health and Group Life

Plum offers both group health insurance and group life insurance for Indian companies starting at 7 employees. Bundling the two products typically yields 5 to 10% cost savings versus buying separately. Plum partners with multiple IRDAI-licensed insurers for both health and life products. For group health, pre-existing conditions are covered from Day 1, the median pre-authorisation TAT is 45 minutes, and claims NPS is 79. The cashless hospital network depends on the partner insurer chosen.

Frequently Asked Questions

Is group life insurance the same as group health insurance?

No. Group health insurance covers medical expenses during the employee's lifetime. Group life insurance pays a lump sum to the nominee on death.

How much group life insurance should an employer provide?

Industry standard is 2 to 4 times annual CTC. Some employers offer tiered cover by job grade, with senior employees receiving higher multiples.

Is group life insurance premium tax-deductible?

Yes. Group life insurance premium paid by the employer is deductible as a business expense under Section 37(1) of the Income Tax Act and not taxable as a perquisite for the employee.

Does group life insurance continue after an employee leaves?

Cover ends with employment. Some plans allow conversion to an individual term policy with the same insurer, subject to terms.