Group term insurance plan

Group term plan provides the employees of a company / firm with a life insurance plan so that their families’ needs are looked after in case an employee dies in an unfortunate event

October 12, 2012 12:34 IST | India Infoline News Service

There is a well known saying ‘People make the place’. No matter which industry you are in, the value that employees bring to an organisation cannot be underestimated. The employees—who work in a company / firm—have a family that financially depends on them. Hence, each employee requires some type of life insurance, especially when others depend on them financially. Providing basic financial security for these employees would not go unnoticed.

The group term insurance plan meets this need and serves as an ideal way for companies to reinforce their bond with their employees. Sum assured is payable on death (either due to natural causes or accidents). Several multinational corporations, large Indian companies, foreign banks and software companies have already covered their employees under group term insurance.

Group term plan provides the employees of a company / firm with a life insurance plan so that their families’ needs are looked after in case an employee dies in an unfortunate event. This sort of insurance would definitely encourage employees to be a part of the company for a long period. Group term plan covers an employee from the minimum age of 18 till the maximum age of 70 or normal retirement age of the employee, whichever is earlier.

Group term insurance plan insures a company’s employees against unfortunate incidents like death, disability or disease. It covers any kind of death—whether accidental or natural—with global coverage .i.e. even if a mishap (death) occurs outside India, it will be covered under this policy.

Group term insurance is meant to provide life insurance protection to groups of people. Administration of the scheme is on group basis and cost is low. Under this plan, life insurance cover is allowed to all employees of a company / firm subject to some simple insurability conditions without insisting upon any medical test / report.

All new employees become a part of the group, if they meet the eligibility criteria. The cover starts from the date of joining the company. The particulars of the new joinees are to be submitted by the employer—to the insurance company—on a monthly basis with the proportionate premium. The plan provides a certain amount of sum assured (as decided by the company / firm) only on death and there is no maturity value paid to an insured employee if he survives the term of the policy. The benefits under the policy are paid to the nominee on occurrence of the event.

In case of an individual leaving service or the company, life cover will cease immediately. Generally, the proportionate premium will be refunded for the employees leaving the scheme. The cover will cease on the earliest of: Date of withdrawal from employer's service; normal retirement date or an earlier age specified for the group by the employer and date of discontinuance of the policy.

Group term insurance

  • Provides protection to an employee
  • Relatively low cost
  • No medical test
  • Choice of optional riders

Group term plan is a one-year contract that is renewable each year. Every year on annual renewal date the insurance company charges the premium depending upon the changes in size and age distribution of the age group. The premium under such scheme may be wholly paid by the employer. However, the scheme may be contributory i.e. the members may also contribute.

Premiums are payable annually in advance. There is a grace period of 30 days on annual renewal date. Claim arising in grace period will be considered, provided the policy is renewed. When a claim arises, the particulars of the respective member are to be intimated together with the claim form and death certificate.

Usually an employee should not have remained absent or availed of leave of absence on grounds of health for a continuous period of seven days or more in the year preceding his admission into the plan. All claim payments are considered as non-taxable receipts and can consequently be considered as tax exempt under Section 10 (10D) of the Income Tax Act, 1961.

Optional rider benefits

  • Accidental death benefit
  • Total permanent disability
  • Total permanent & partial disability benefit
  • Critical illness benefit
  • Terminal illness benefit

Group term insurance may have add-ons like double accident benefit, critical illness benefit, disability benefit, etc. The plan also offers additional covers against accident and disabilities as riders to the basic plan for a nominal additional premium. Accident and disability benefit rider generally means on death of the insured employee due to an accident, the sum assured under the rider will be paid. Under accident benefit rider, an amount equal to sum assured under the rider is payable in the event of death of the life assured due to accident. Double accident benefit, i.e. payment of double the sum assured on death due to accident (without permanent disability benefit), may be allowed under group insurance schemes for an extra premium.

Read more:

Advantages of life insurance

Planning for lives while we are alive: Importance of life insurance

Debunking 5 life insurance misconceptions

Asymmetry in life insurance selling

How much insurance coverage one should have?

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