Group Term Insurance Plan for your Employees - What It Is, How It Works, Benefits
Picking group term life cover for your employees? Here’s a guide to help you gain a better understanding of its basics, eligibility, and benefits before getting started.
An Introduction to Group Term Life Insurance
What is group term life insurance?
Let’s simplify what the words in group term life insurance mean. Imagine you took a life insurance policy and added your parents as beneficiaries. The insurer promises to pay your beneficiaries cash in the event of your demise.
Let’s take this a step further. Term life insurance means you pay the insurer premiums for a specific period. The term period depends on the policy. The key difference between term life insurance and a group term cover is the person opting for insurance. Under a group cover, the employer of an organisation picks the policy.
Employees could add beneficiaries who derive the cover's benefits if they passed during the term. Moreover, the employer takes all the critical decisions about the policy. These include sum assured, add-ons and more. This makes them the central admin, someone in charge of all policy matters on behalf of the employees.
Why do you need group term life insurance?
Think about what your employees value the most about their work?
Some value its impact, others appreciate good compensation and ample growth opportunities. For the rest, it might be the security it brings.
But why do your employees value their work?
You’d say work enables your employees to lead a better life. It helps them find a purpose. It also allows them to provide for their family and fulfill their aspirations.
Infact, most of your employees could be the primary caretaker of their family’s. As per the ‘Household Survey on India’s Citizen Environment & Consumer Economy’ (ICE 360° survey), 60% households in India have only one earning member.
So, an untimely demise of your employee could possibly derail their family's financial and life goals. Which is why term insurance becomes so critical.
And that’s where your role in securing your employees’ families strengthens. By providing a group term life cover, your employees skip the complicated process of buying personal life insurance.
Most importantly, you show your employees that you care. That you are there for them beyond work. You tell them that you care about their families' wellbeing as your own. You provide their families with financial compensation for when your employee is no longer around. If you ask us, that is a great and supportive environment to be in.
Features of group term insurance plan
A group term life insurance scheme is a single master contract which covers all employees in the same organisation. Your workforce can avail extensive life cover benefits at no cost to their paycheck.
The loss of a bread-winner in the family raises multiple uncertainties about their future. Group term insurance provides adequate financial compensation to help your employee’s family during difficult times.
No waiting period
All employees become a part of the group term life insurance policy by default when they join an organisation. No waiting period is required for the policy’s inception, and employees can avail full benefits of the scheme without submitting any medical report.
You can also include extensive add-ons to the master group term life policy, such as critical illness coverage, permanent or temporary disability, accidental death and more. This offers a comprehensive protection to your employees.
Benefits & Working of Group Term Life Insurance
Benefits of a group term insurance policy
Show employees that you care
Group term life insurance is the first step in showing employees that you are invested in their well-being. A group term cover provides employees with a solid financial foundation, increasing their job safety and satisfaction.
Low premium cost and tax benefits
Group term cover allows you to provide insurance coverage for your employees at a lower cost than an individual cover. The employer can also avail tax benefits and deductions under Section 37 of the Income Tax Act, 1961.
The best employee retention strategy
You can eliminate attrition problems by ensuring that the people responsible for building your organisation’s foundations are healthy and happy. Offering a comprehensive group term cover can enable employees to be more committed to your organisation and are motivated to do their best work.
The nominee gets the sum assured in case of the insured employee’s death. This offers the employee’s family financial protection during such unprecedented times.
No prior-health check required
Employees can avail group term cover without the trouble of extensive medical checkups. This is because the risk spreads over a large number of people. And so, organisations can avail standardised group term cover for everybody. A group term insurance covers employees from day one. They derive all insurance benefits by default as long as they are part of the organisation.
Group term policy can be made comprehensible with add-ons such as education allowance, critical illness, accidental death cover, repatriation allowance and more. This makes the group term insurance policy more tailored to meet employees’ needs at a minimal cost.
Things to know before buying group term insurance policy
Claim settlement ratio
Claim settlement ratio is a reflection of the insurer’s trustworthiness. It’s a sign of their reliability. It signifies the probability of the insured’s beneficiaries getting the sum assured. For instance, higher CSR means a higher possibility of claims getting settled.
A claim settlement ratio of 80% and more is a good indicator. A low claim settlement ratio is undesirable as the chances of an insurer not honouring their promise are higher. Yet, CSR should not be the only factor you consider when picking a group term policy.
Other key factors to check are solvency ratio, choice of additional benefits and more.
When you pick a group term policy, the insurer promises to pay a sum assured to your employees’ beneficiaries if they die during the term. That’s a significant promise as the amount to be settled is large. And for this reason, you should always consider if the insurer is financially strong to settle claims.
This is also known as solvency ratio. It reflects the insurer's financial strength and capability to pay the sum assured if your employee passes away. IRDA has mandated insurers to maintain a minimum solvency ratio of 1.5. And so, as a thumb rule, opt for a policy with a solvency ratio higher than 1.5.
Sum assured is the total amount paid to your employee’s beneficiaries in the event of their untimely demise. This can be common for all employees or a multiple of their annual CTC. This partially determines the premium paid on group term cover as well.
Pick additional features that complement your group's term life insurance plan. For example, providing additional add-ons such as critical illness, accidental death cover and more protects your employees against additional risks.
Made better with Plum
This ranges from educating employees on health to providing them with doctor consultations, exclusive discounts on medicines and more.
Apart from health benefits, we have also chosen a wellness-driven approach to help employees better care for themselves.
We provide a plan that offers complete and seamless admin experience. This will help you manage new/old employees, their beneficiaries and the policy details easily.
How does group term insurance work?
Step 1: Do policy research
One of the critical decisions you’ll make when picking your group term policy is the sum assured to pay. Sum assured is the amount employees’ dependents get if they pass away during the term.
There are two major ways to calculate the sum assured. One, you offer a fixed life cover to all your employees. This is also known as a flat cover. Or two, you provide a sum assured that is a multiple of your employees’ CTC. For instance, if an employee’s salary is 7 LPA and the multiplier on the cover is two, their sum assured is 14 LPA.
Step 2: Add your Riders
Riders are add-ons that make your group term cover comprehensive. The most common ones are critical illness cover, accidental benefits and more. Opting for riders increases the premium of the cover.
The best way to decide what riders are best for your group cover is to gather feedback from your employees. It offers insight into what your employees value the most.
Step 3: Get a quote
The insurer offers a premium estimate once you have the basic policy details. The premium estimate depends on your industry, the number of employees and their average age. Organisations can renew their group term cover annually.
Employees are covered from day one under group term cover once the payment is made.
Step 4: Roll out the policy
Once your policy is let, you can then let your employees list their beneficiaries to the policy. If an employee passes away during the term, the group term life policy releases the sum assured cover. The payout happens in lump sum or instalments to the employee's beneficiaries.
This financial compensation helps the employees' dependents, such as their spouses and children. They can use the sum assured as substitute income in the aftermath of the insured’s passing away.
Buy Your Group Term Life Insurance with Plum
Who is eligible for group term life insurance in India?
An umbrella of enterprises can avail group term cover in India for their employees. The minimum age for employees obtaining group life cover in India is 18 years, while the maximum ranges from 65 to 69 years.
Formal employer-employee groups need at least 10 employees to be eligible for group term insurance.
Non-employer-employee groups can be subject to conditions imposed by the IRDA. These are social organisations, members belonging to the same society and more. The least number of members required for non-employer-employee groups is 50.
The need for group term cover must be incidental for non-employer-employee groups. This means there should be a clear relationship between the policyholder and group members for services other than insurance alone.
Other groups that can avail group term cover are microfinance institutions, banks and non-banking financial institutions. Professional groups, associations, SMEs and start-ups can also avail group term life insurance.
Group term life insurance goes a long way in securing your employees’ dependents if they passed away. Nobody should ever have to be in a situation where they are uncertain about how their lives will play out.
As an employer, you can guarantee your employees’ dependents' goals and aspirations don’t derail for the foreseeable future. You do this by opting for a group term cover with a generous sum assured policy.
This helps your organisation foster a culture of care. You show your employees that you are there for them beyond work and encourage them to think cautiously about the future. If this sounds like you, schedule a call with our experts to create the perfect group term cover - one that works for you.
What is ranked cover in group term insurance?
Although most organizations provide universal group term life cover or primary term cover, multinational corporations allow ranked cover depending on the employee's grade. A grade can be defined as a combination of designation, role or number of years served by the employee.
What is sum assured in group term cover?
Sum assured is commonly known as a death benefit in group life insurance plans. A death benefit is the lump sum payout the deceased employee's family receives under the group life cover scheme.
How do group term plans work?
All group term life insurance covers work on the simple concept of death benefit payout. For example, Company B buys a group term plan for Mr. A (an employee) with a sum assured of Rs. 20 lakhs. If Mr. A meets with an accident and is no more, the sum assured amount of Rs. 20 lakhs will be provided to the family members of Mr. A.
As an individual, can I buy group life insurance?
No. Individuals are not allowed and not eligible to buy group term insurance policies in India. You have to be part of a group to get the benefits of such a plan.
Is there a minimum sum that is assured under group term insurance?
Yes. The minimum sum that is assured under a group term life insurance coverage scheme ranges between Rs. 1000 to Rs. 5000. This again varies across different plans, employee grades, and insurance groups.
What is the minimum tenure under group term insurance?
The minimum tenure under group term is one year. Your company usually renews this plan on an annual basis.
What is the minimum number of employer-employees required for a group term life plan?
The minimum number of workers required to enrol in a group term insurance policy is 100 members.
Do I get maturity or survival benefit under an employee-sponsored group term plan?
No. By default, group term life insurance policies do not have survival/maturity benefits.
Is my group term life insurance valid after I leave my company?
No. A group term policy coverage ends if you have left the company for another employer. But you can always port the plan from the group into individual insurance (life) policy.
How is the premium of group term life policies calculated?
The premium amount depends on multiple factors such as - salary & grade of employees, the addition of new employees, the exit of group members, age of workers, and more.
The median sum insured offered by India's employers
This is 40% lesser than the recommended cover of 5 lakhs.
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