A Complete Guide on the Group Term Insurance Policy in India

In 2023, insurance penetration in India reached 4%, majorly driven by the life insurance sector. In fact, in 2022, the Life Insurance Corporation of India (LIC) alone issued a whopping 22 million new policies.^[2] These numbers signify a rapid growth in the country’s life insurance sector. One life insurance product that has particularly gained popularity among the masses is term insurance.

So much so that many companies are now offering this coverage as an added perk to their employees through group-term insurance. But how exactly does it work, and is it worth relying only on the group plan? We’ll answer everything in this article.

What is Group Term Life Insurance?

As the name suggests, group term life insurance provides coverage to a group of people for a fixed period and pays out the death benefit to their beneficiaries in the unfortunate event of their demise. Employers typically offer these plans to their employees as part of their compensation package.

Group insurance plans are more cost-effective than individual plans. Moreover, they aren’t limited to employers and employees but can also include NGOs, bank clients, non-banking financial institutions (NBFCs), and more.

How Does Group Term Insurance Work?

A group term life insurance plan is a contract between the employer and insurance provider where the coverage is extended to all employees under a single plan. The employer is the master policyholder and acts on behalf of the employees.

The master policyholder determines the coverage amount, which can be a flat amount for all employees or vary depending on the company’s hierarchy levels.

For group insurance plans, the premiums are usually paid by the employer, but in some cases, a small amount can be deducted from the employees’ salaries. If the employee passes away while still being employed with the company, the insurance provider pays out the death benefit to the family.

Types of Group Term Life Insurance

Group term life insurance can broadly be categorised into two categories:

1. Employer-sponsored Insurance Plans : These include –

• Basic Group Term Life Insurance: A standard policy where the employer pays the premiums, and the coverage is calculated as a multiple of the employee’s salary.
• Supplement Group Term Life Insurance: An additional coverage on top of the basic group plan where the employees pay the premiums.

2. Non-employer-sponsored Insurance Plans : These include –

• Association Group Term Life Insurance: Offered by an association or organisation where members can buy the plan at a discounted rate.
• Affinity Group Term Life Insurance: Offered to members of affinity groups, such as an alumni association or credit union.
• Credit Life Insurance: Offered by lenders to borrowers to provide coverage for repaying the debt in case they pass away before the repayment.

Benefits of Group Term Life Insurance

Group term life insurance offers a host of benefits, such as:

1. Economical Premium

Group insurance plans are more cost-effective than individual plans. They cover multiple people under a single umbrella policy, spreading the risk across a large group and making them affordable for employers.

2. Uniform Coverage

Group term insurance provides coverage to all members, regardless of their health status or age, ensuring the same level of protection.

3. No Medical Check-ups

Unlike traditional individual life insurance policies that require a thorough medical assessment, group plans don’t have this requirement. This simplifies the application process, making term insurance more accessible.

4. Additional Benefits

Certain group term insurance policies may offer additional benefits, such as critical illness riders, accidental death, or disability coverage. These add-ons enhance the insurance plan and ensure comprehensive coverage.

5. Tax Benefits

Employers can claim tax benefits on the premium amount under Section 37(1) of the Income Tax Act. Death benefits received by beneficiaries are also exempt from taxes under Section 10(10D).^[3]

6. Easy to Manage

Group insurance plans are typically managed by the employer, eliminating the employees’ burden. Employers handle the end-to-end process, including enrollment, premium payments, and claims processing.

Limitations of Group Term Life Insurance

While group term life insurance can be a convenient, cost-effective option, it also comes with certain limitations. These include:

1. Limited Coverage

Group term plans typically have lower coverage amounts. Additionally, since the employer determines the coverage, employees do not have a lot of control over the coverage or terms.

2. Loss of Coverage

The coverage for group plans typically ends when an employee leaves the organisation. This can leave them without any life insurance during the transition period.

3. No Survival Benefits

Group term plans do not provide any survival or maturity benefits. They are purely designed to provide a death benefit to beneficiaries in the event of the employee’s demise.

Why You Shouldn’t Overlook Individual Term Insurance?

While group insurance plans offer convenience and cost savings, it’s important to invest in individual term insurance too. Here’s why:

Key Takeaways

Group term plans are an attractive benefit for retaining employees and enhancing their satisfaction. However, just relying on a group plan might not be enough. Therefore, it’s advisable to invest in an individual term policy to ensure adequate coverage even after you leave the job. Explore your options and consider purchasing an individual term plan on platforms like PhonePe for a seamless and convenient experience.