How is the sum assured in group term life insurance determined?

The sum assured in a group term life insurance policy is determined by the employer, not the insurer. Employers choose from three standard structures: a flat amount for all employees, a multiple of each employee's annual CTC, or a graded amount tied to designation or pay band. There is no IRDAI-prescribed minimum or maximum; per-employee cover in the Indian market commonly ranges from ₹5 lakh to ₹2 crore.

What are the three ways employers set the sum assured in group term life?

A flat structure gives every covered employee the same sum assured regardless of salary or seniority — for example, ₹25 lakh per head across the entire workforce. This is the simplest design to administer and is common at early-stage companies where pay bands are narrow. A salary-multiple structure ties each employee's cover to their annual CTC, so a person on ₹12 lakh at a 3x multiple carries ₹36 lakh of cover; the same multiple gives a ₹25 lakh earner ₹75 lakh. This approach is widely used at companies where there is a significant spread between junior and senior salaries. A graded structure assigns sum assured by designation or pay band rather than exact salary — field staff might receive ₹10 lakh, supervisors ₹20 lakh, and senior management ₹50 lakh. Grading is useful when the employer wants a clear hierarchy in benefits without recalculating cover each time an individual's salary changes.

What salary multiple is most common for group term life in India?

A multiple of 3x to 5x annual CTC is the most common range. At 3x, an employee on ₹10 lakh CTC has ₹30 lakh of cover; at 5x, the same employee has ₹50 lakh. MNCs and larger tech companies increasingly offer 5x as the baseline for all employees, with senior leadership receiving 8x–10x through a graded overlay. The practical floor most HR teams use is 3x, on the basis that three years of income gives a family time to stabilise financially and find alternative support. A 4x or 5x multiple is increasingly a hygiene standard when competing for mid-to-senior talent in the organised sector.

Does the free-cover limit affect how the sum assured is set?

Yes. Most group term life policies have a free-cover limit — the maximum sum assured per employee that the insurer covers without requiring individual medical underwriting or a health declaration. Employees whose sum assured falls within this limit are covered automatically at enrolment. Those above it need to submit a medical questionnaire or undergo tests. The free-cover limit varies by insurer and group size but commonly sits at ₹50 lakh–₹1 crore for groups of 50+ employees. Employers designing a graded structure where senior employees carry ₹1 crore or more should confirm the free-cover limit at the quote stage to avoid underwriting surprises at enrolment.

How does the sum assured interact with EDLI — the mandatory EPFO life cover?

EDLI (Employees' Deposit Linked Insurance Scheme) provides a minimum of ₹2.5 lakh and up to ₹7 lakh to the nominee of an EPF member who dies during service, funded by the employer at 0.5% of wages. A July 2025 amendment extended a minimum ₹50,000 benefit to employees with less than one year of continuous service. EDLI is automatic for all EPF members and is separate from any group term life policy. A dedicated GTL policy sits on top of EDLI — it does not replace it. An employer running a 4x CTC group term life policy for an employee on ₹12 lakh (₹48 lakh GTL cover) also provides EDLI separately; the nominee can claim both.

What happens to the sum assured when an employee gets a salary revision?

Under a flat structure, salary changes have no effect on the sum assured. Under a salary-multiple structure, the employer updates the sum assured at each policy renewal, using the salary data as of a defined date (commonly the renewal date or the start of the financial year). Mid-year salary revisions are typically not reflected until renewal. Some policies allow mid-year endorsements for promotions above a threshold, but this is insurer-specific. Under a graded structure, the employee's sum assured changes when they move to a new pay band or designation, which is processed as a policy endorsement. Employers should confirm the endorsement process with their broker or insurer at plan design stage to avoid under-insurance at claim time.

How should a company choose between flat, salary-multiple, and graded structures?

Companies with 7–50 employees and a relatively compressed pay structure benefit most from a flat sum assured — it is straightforward, easy to communicate, and requires minimal annual admin. A salary-multiple structure works well when the pay range within the workforce is wide, because flat cover either over-insures junior employees or under-insures senior ones. Graded structures suit companies above 200 employees with a clear hierarchical structure and where differentiation in benefits is part of the EVP. The graded approach requires more coordination with HR and payroll at each renewal, but it gives the employer the most control over the benefits story across levels.

How Plum structures group term life sum assured

Plum brokers group term life insurance for companies with a minimum of 7 employees, alongside group health insurance with insurer partners including ICICI Lombard, HDFC ERGO, Bajaj General Insurance, Star Health, Niva Bupa, and Aditya Birla Health Insurance. At plan design, Plum works with the employer to select the sum assured structure — flat, multiple, or graded — based on workforce size, pay distribution, and the benefits story the company wants to communicate. Plum's claims NPS is 79 and median pre-authorisation TAT on health claims is 45 minutes.

FAQ

Is there a minimum sum assured required by IRDAI for group term life insurance?

No. IRDAI does not prescribe a minimum sum assured for group term life policies. The employer sets the amount. In practice, most insurers will issue cover starting at ₹5 lakh per employee, but the design is entirely the employer's decision.

Can different employees in the same company have different sum assured amounts?

Yes. A graded structure explicitly provides different sum assured amounts by designation or pay band. Even under a salary-multiple structure, each employee's cover differs because it is calculated from their individual CTC.

Is the sum assured under group term life paid in addition to gratuity and PF?

Yes. The GTL death benefit is separate from gratuity and EPF. On an employee's death during service, the nominee can claim all three: the GTL sum assured, the gratuity amount (payable after one year of service for fixed-term employees under the Code on Social Security 2020), and the EPF corpus plus EDLI benefit.

Does the sum assured reduce over time, like a home loan cover?

Standard group term life policies in India provide a level sum assured throughout the policy year — it does not reduce. Some credit-life or loan-linked group covers are structured with a reducing sum assured, but employer-provided GTL is almost always level cover renewed annually.

What happens to the sum assured when an employee leaves the company?

Cover lapses on the last day of employment. Some insurers offer a conversion option allowing the departing employee to convert their group cover to an individual policy without fresh underwriting, but this is insurer-specific. Employees with dependants should be advised at onboarding to maintain a personal term policy, since their employer-provided cover ends on separation.

Can the employer set a different sum assured for contract employees vs permanent staff?

Yes. Group term life policies can cover different categories of workers at different sum assured levels, provided each category is clearly defined in the master policy schedule. Gig workers and platform workers are separately covered under Sections 113–114 of the Code on Social Security 2020, though the GTL benefit design for these workers differs from standard employee cover.