As the name suggests, group term life insurance is a type of insurance policy that covers a group of people under a single plan. Generally, the organisations provide group term insurance to all their employees as part of their employee benefits and retention program. It is a feasible and cost-effective way for employers to offer life cover to employees rather than buying an individual policy.
Just like a standard life insurance policy, a group term plan guarantees financial protection to the employees’ families in the event of their untimely demise during the coverage period.
Working of a group term insurance policy
A group term insurance is a master contract between the insurance company and the organisation that purchases the policy. This means irrespective of the number of employees covered under the plan, the policy buyer (the employer) is the policy owner.
The employer and the insurance company agree upon the group term insurance plan’s terms and conditions, and it becomes binding on all the employees. The employer chooses the sum assured and pays the premium accordingly.
Another significant feature of group term life insurance is that it does not need individual underwriting every time the organisation adds a new member to the policy during the policy period.
Features of group term insurance
The employer or the policyholder can add new members to the plan at any time of the year while the policy is active.
Under group term insurance, the sum assured is generally distributed equally among all the members covered under the plan. When the employee’s family member files a claim, they get a pre-decided amount as a death benefit.
The application process for a group term insurance policy is simple. When you join the organisation, the HR (Human Resource) department may ask you to fill an insurance application form. You must provide personal details and appoint a nominee to receive the death benefits.
One of the noteworthy features of a group term plan is that the premium is affordable and cheaper than an individual life insurance policy.
As an employee, you can enjoy the policy benefits until you are associated with the organisation that offers you the cover. When you quit or retire, your life cover ceases to exist, and you or your family members cannot claim any benefit.
The need for an individual term insurance
Even if your employer offers life cover under a group term insurance plan, you must not solely rely on it to secure your family’s financial future. Many experts recommend buying an individual policy for your family.
This is because, in most cases, the sum assured under the group term plan is small, which may be insufficient to meet your family’s needs. Besides, when you are covered under the group term plan, you cannot customise it as per your family’s needs.
When buying an individual term plan, you can choose the right sum assured based on your family’s needs and premium payment capacity. You can also customise the coverage and purchase add-ons to cover other specific risks. So, make sure that you buy an individual term policy to safeguard your family’s future.