How is the sum assured determined in group life insurance?

The sum assured in group term life insurance is determined by the employer when it sets up the master policy, using one of three common structures: a flat amount for everyone, a multiple of each employee’s salary, or a graded amount tied to grade or designation. There is no fixed IRDAI cap on the maximum sum assured; it depends on the insurer and the employer’s chosen design, with per-employee cover in the Indian market commonly ranging from ₹5 lakh to ₹2 crore.

What is a flat sum assured structure?

A flat structure gives every covered employee the same sum assured, regardless of salary or role. An employer might set a uniform cover of ₹10 lakh or ₹20 lakh across the workforce. Flat structures are common in small companies and startups because they are simple to administer and communicate, and they avoid disclosing individual salaries to the insurer. The trade-off is that a flat amount may be generous for junior staff and modest relative to the income of senior employees.

How does a salary-multiple structure work?

A salary-multiple structure sets each employee’s sum assured as a fixed multiple of annual salary or cost-to-company, so cover scales with income. A common design is two to three times annual CTC, so an employee on ₹12 lakh a year at a multiple of three would carry ₹36 lakh of cover. This approach ties protection to the income the family would lose and is widely used where employees at the same level earn different amounts. The premium rises with the sum assured, so a higher multiple costs more per head.

What is a graded sum assured structure?

A graded structure assigns sum assured by grade, designation, or pay band rather than by exact salary. For example, field staff might receive ₹10 lakh, supervisors ₹20 lakh, and senior management ₹50 lakh. Grading lets an employer differentiate cover across a hierarchy without revising the policy every time an individual salary changes, since employees move between defined bands. It also avoids disclosing each person’s exact salary to the insurer while keeping cover broadly proportionate to seniority.

What factors influence the sum assured an employer can set?

The sum assured an employer can set depends on workforce profile, premium budget, and insurer underwriting. Group size and age mix affect the rate, with larger and younger groups attracting better terms. Industry risk influences the premium, so manufacturing or field-heavy workforces may cost more than office-based teams for the same cover. The employer’s budget caps how much protection can be extended. Many policies also allow employees to buy voluntary top-up cover through payroll deduction, usually at group rates, on top of the employer-funded base.

How Plum approaches this

Plum sets up group health and group term life cover for companies with a minimum of 7 employees, against the common assumption that a group needs only 2 or 3 members. The claims experience is measured: Plum holds a claims NPS of 79 and a median pre-authorisation turnaround of 45 minutes, well inside the one-hour cashless pre-authorisation window set by the IRDAI Master Circular of May 2024. Cashless access depends on the insurer underwriting the policy, so the hospital network varies; Plum places cover with insurers including ICICI Lombard, HDFC ERGO, Bajaj Allianz, Star Health, Niva Bupa, and Aditya Birla Health Insurance, and matches the network to where a company’s employees actually live and work.

Frequently asked questions

Is there a maximum sum assured for group term life in India? There is no fixed IRDAI cap. The maximum depends on the insurer and the employer’s design, though high covers may need additional underwriting.

Can employees increase their own cover? Yes, where the employer offers a voluntary top-up. The employee pays the extra premium, usually through salary deduction, at group rates.

Does the sum assured change when salary changes? Under a salary-multiple structure it tracks salary at renewal. Under a graded structure it changes only when the employee moves to a different band.