A group life insurance policy is a type of policy that covers multiple people under a single plan. Usually, corporate organisations, banks, NGOs, microfinance companies, and so on, opt for such plans for their members. In a similar vein to individual life insurance, there are various types of group life insurance plans as well that offer a wide variety of coverage. Regardless of the kind of policy chosen, the base coverage, that is insuring the life of the covered member, remains constant. In this article, we take a deeper look at how group life insurance works and what it covers in its various categories.
What is group life insurance and how does it work?
In a group insurance policy, many people are covered under a single contract, also called the master plan. The head of the organisation, who is also responsible for determining the coverage of the plan, is called the master policyholder. As per the coverage decided by this individual, the premium is deducted from the earnings of the members. If any of the members pass away under conditions mentioned in the policy, the master policyholder ensures that the beneficiaries receive the financial compensation in such a situation.
Now, the coverage, and thus the premium, depends on the type of group policy that has been chosen.
What does a group life insurance policy usually cover?
- Life coverage
There is no predicting the uncertain turns that life can take. Though many of these events may be out of your control, life insurance coverage assures you that your loved ones have the finances to deal with difficult times. This is the most basic aspect covered by any group life insurance policy. Many group life policies are pure protection plans concerned solely with providing life coverage.
- Life coverage + gratuity assurance
Paying gratuity to employees that have completed five years of service is necessary for many organisations. With a group life insurance policy, the employer can fulfil this obligation alongside providing a life cover to their employees. The employee gets the assurance of life coverage and a considerable gratuity amount while the employer is able to build funds for the gratuity.
- Investment-linked returns
In group investment-linked life insurance plans, the covered members receive life coverage along with the chance to invest in the markets. The premiums paid for the policy are distributed in two directions. One portion is used to build the life cover while the other is invested into the financial instruments of the member’s choice. The returns accumulated on the funds are provided to the member on their leaving the organisation, or when the policy matures. These plans, thus, offer better financial support to meet life’s uncertainties.
- Credit protection
There are various group life insurance plans that offer credit protection to their members. That is, in the event of the covered member passing away, this plan takes care of any outstanding loans borrowed by them. This relieves the family members of the pressure to pay off these loans when they are already undergoing turbulent times.
- Retirement planning
Group life insurance plans that have a retirement planning aspect attached to them are called group superannuation insurance plans. The covered members receive life insurance coverage for as long as they are a member of the organisation. Once they retire, these plans also provide a steady amount of funds that act as a regular income to ensure a smooth retirement lifestyle.
The employer, too, benefits as it helps them to build a substantial pension fund for their employees. Such plans also act as a retention tool, since many working professionals tend to prioritise retirement planning when it comes to finances.
Benefits of group life insurance plans
With its wide variety of policies, the category of group life insurance can prove to be an effective investment for employers as well as employees. Here’s why:
Employees get low-cost life coverage. The premiums of a group policy are relatively lower as compared to individual life insurance plans.
The benefit of supplementary life insurance coverage is something that attracts and retains employees. Thus, it is beneficial for employers as well.
There are considerable group insurance tax benefits, too. The death benefit pay-out that the beneficiaries receive is exempted from taxation. Similarly, the premiums paid by the employers are exempted from taxation as prevalent tax laws.
Tax benefits are subject to amendments in tax laws. Do reach out to a professional to get a deeper understanding of what group life insurance is and what kind of coverage would be ideal.
