All You Need To Know About Group Term Insurance Policies
Imagine you recently went to a bank to deposit some money to your account when the bank clerk started talking to you about a group term insurance policy that the bank has started offering to all its account holders. He explained the various features and terms of the plan and told you how you can get the group term cover for your family’s future financial security. He told you to give this some thought and let him know if you’ll be interested. Now, after you reach your house, you start thinking about this and a lot of questions cross your mind.
How is a group term plan different from an individual term insurance policy? What are the group term life insurance benefits? And most importantly, what are the drawbacks?
In this article, we’ve tried to answer all these and a lot of other questions related to group term insurance. So, let’s dive in.
What Is Group Term Life Insurance Policy?
As the name suggests, a group term insurance plan is an insurance product that offers term cover to a large group of people under a single policy. It is a death benefit policy, meaning, if you’re covered under a group term plan, it will pay a fixed sum of money to your nominee if you pass away while the policy is active.
How Does A Group Term Insurance Plan Work?
A group term life insurance policy is provided by employers to their employees, banks to their account holders, NGOs, professional groups, non-banking financial institutions, microfinance institutions to their members, etc. Basically, the insurance company offers one master policy to the group policy administrator or the master policyholder - that is, the employer, bank, or the organisation. They pay the premiums and issue the cover to all the employees/ members of the group.
Some things about group term policies you must know -
- They have to be renewed every year.
- They are significantly cheaper than an individual policy.
- They are issued without any medical tests.
- The application process of the plan is relatively simple and hassle-free in comparison to a retail, individual policy purchased from the insurance company.
- The employer, bank or organisation can add members to the group and offer them term coverage at any time of the year.
Now that you’ve understood group term life insurance meaning, and how it works, let’s take a look at the eligibility conditions for a group term life insurance policy.
Eligibility Conditions For Group Term Insurance
👉 Basic requirements
The most basic or fundamental requirement for being part of a group cover is that you must be a member of the group and the group must not be formed with the sole purpose of availing insurance.
There could be other criteria as well laid down by the insurer e.g. group size, entry age of members, etc. Every member of the group will have to fulfil the set of conditions laid down by the insurer if they want to be covered under the group plan.
👉 Group size
If it's an informal group (a cultural group, a group of credit card holders, etc.), the minimum size of the group should be 50 members. And in the case of a formal group (company, organisation, etc.), there should be a minimum of 10 members in the group.
The premium of the group cover will depend majorly on the size of the group and the age of the members. So, ideally, the more members in the group, the cheaper the policy will be.
👉 Entry age
While every member should be at least 18 years when it comes to getting coverage under the group plan, the maximum entry age can be 65 years, 70 years, 80 years, 85 years, or more - depending on the insurance company the group policy is purchased from.
Varieties Of Group Term Life Insurance Plans
👉 Flat cover for all members
Some groups provide a flat cover - that is, a uniform cover to all the members. For instance, a bank offering a group term insurance cover of INR 50 Lakhs to all its account holders irrespective of their age is an example of flat cover.
👉 Different cover for different members
Some groups offer different coverage to different members. The employer or the head of the organisation who's providing the cover will grade the members on the basis of their rank, salary levels, CTC, outstanding loans, liability amounts, size of bank deposits, etc. and then offer coverage accordingly.
For instance, Tanya and Rohan both are employees of Company XYZ. Tanya's annual salary is INR 6 Lakhs whereas Rohan's salary is INR 4 Lakhs. Since Tanya's salary is higher, she'll be offered a group policy with a higher cover than Rohan.
👉 Policies with add-ons
With some group term insurance plans, you also get additional benefits in the form of riders - that will pay you under specific circumstances. Critical illness rider, accidental death benefit rider, accidental disability rider, are some common types of riders available with group plans.
Things You Should Know About A Group Term Insurance Plan
Here are some important things you should know about group term insurance policies.
👉 Coverage is linked to your membership
The group term insurance cover is linked to your membership with the organisation or institution. Meaning, if you’re covered under your company’s group term plan and decide to leave your job, or if you’ve taken a group term plan with a bank and decide to close your account with that bank, your term insurance cover will stop too.
👉 Limited choice and customization options available
Compared to individual term insurance policies, there are very few features and customisation options available with a group term life insurance policy. In addition to this, the group term insurance policy will be managed by the employer, bank, or the organisation.
Hence, you’ll have little or no control over the policy terms and customizations - unlike an individual policy, where you get to choose which features to pick, which to skip, and design the plan perfectly as per your and your family’s preferences.
👉 Low coverage amount
Since it’s a group plan, the policy negotiations, too, will be controlled by the organisation or institution you’re buying the policy from. They will buy a cover from the insurance company that will fit their budget and be less bothered about offering you a cover that will be suitable for you or your family. So, there are high chances you’ll end up getting a cover that will be very low and inadequate for your family’s future financial needs.
Tax Benefits On Group Term Insurance Plans
Is group term life insurance taxable? Well, you can get tax benefits on group term insurance policies under two sections of the Income Tax Act, 1961 -
- Under Section 10 (10D): The term insurance payout that your family will receive if your death happens during the policy term, will be completely tax-free under Section 10(10D).
- Under Section 80C: Mostly, the premiums of a group term plan are paid by the employer, bank or the organisation that is offering the cover to you. However, in case you’re making the premium payment (either fully or partially) by yourself, you can get tax deductions on the premium amount you’re paying under Section 80C.
A Question You Might Have:
Can A Group Term Plan Be Converted To An Individual Term Plan?
There are some insurance companies in the market that offer group term insurance policies with a conversion option. If you’re covered under a group policy with such an option, you can convert or port your policy into an individual term insurance policy.
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- Group term plans are insurance plans that provide life cover to a group of people under a single policy. They are offered by companies, banks, NGOs, professional groups, etc.
- The insurer provides one master policy to the group administrator who pays the premiums and issues the cover to all the members of the group.
- Group term life insurance policies are renewable every year and are significantly cheaper than an individual policy. They are issued without a medical test and the application process is very quick and easy.
- The employer, bank, or organisation can add members to the group and offer them term coverage at any time of the year.
- There are a variety of group plans available - some offer uniform cover to all the members, some offer different covers to different members based on various grades, and some offer riders.
- The minimum size of the group should be 50 members for an informal group and 10 members for a formal group. And the minimum age of the members should be 18. The maximum age will depend on the insurer you’re buying from.
- The group term coverage is linked to your membership with the group. Once you leave the group, your cover will stop too.
- There are very limited customization options available and the cover amount too will be low as it is a group cover.
- Group term insurance life policies offer tax benefits too under the Income Tax Act, 1961. The claim received by your family will be tax-free u/s 10(10D). And if you’re paying the premiums by yourself, you can also get tax deductions for the premium amount u/s 80C.
- Some group policies come with a conversion option where you can convert the group policy to an individual plan.
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