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What is group term life insurance? A comprehensive explanation

By Finserv MARKETS - Aug 12,2019
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A Brief Explanation Of Group Term Life Insurance

When Mukesh got his first job, he was not entirely satisfied with the package. He called up the company and requested them to increase his take-home salary. Rather than renegotiating the package, the company tried to convince Mukesh through add-on benefits like health insurance and group term life insurance. Companies in the organised sector often give additional benefits like group term life insurance. These group insurance plans provide a sense of security to employees and save the money required to purchase individual policies.

What is group term life insurance?

As opposed to individual plans, group term insurance plans cover a large number of people under a single policy. Insurance companies enter into a master contract with the employer, who transfer the coverage to the employees.

A Brief Explanation Of Group Term Life Insurance

Basic Insurance Cover

A group term plan acts as a default life insurance cover and the employee does not have to think about getting an individual plan immediately. It provides insurance cover just by being part of a group.

Tax Benefits

Like most insurance policies, group life plans also qualify for tax benefits. As per Section 10(10D) of Income Tax Act, 1966, death benefits to employees are exempt from taxes. Besides tax benefits, group term plans also help in employee retention.

No Medical Tests

One of the defining features of a group term insurance is that it doesn’t require a medical examination. If you take an individual life insurance policy, you will have to undergo a set of medical tests. The result of the tests decides the cost of the policy. If any medical ailments are found, the cost naturally goes up.

Less Expensive

Group insurance plans are as beneficial for employers as they are for employees. Providing insurance to a group is much cheaper than distributing individual policies. Providing add-on features like insurance policies also boosts employees’ morale.

Customizable to Employees’ Needs

Employers can use group insurance term plans to give incentives to employees based on rank or performance. Group term plans are easily customizable to include add-ons like education allowance, repatriation allowance and accidental death, along with the base cover.

Worldwide Coverage

Bajaj Allianz Group Term Life Insurance Plan, available on Finserv MARKETS, offers protection all around the world, which means that if a policyholder dies in a foreign land, his family will still receive the benefits in India.

Despite a multitude of benefits, group plans also have some drawbacks.

Coverage may not be adequate

Group term insurance plans are good as a basic insurance plan but may fall short of providing comprehensive coverage. Group term life insurance is shared by several people with different financial needs. The coverage is generally equal to the annual income of the policyholder, while ideally, a life insurance policy should provide coverage equal to seven to ten times of the annual income.

Tenure of the policy

The coverage of a group life insurance policy lasts only until you work at the company. Many people rely solely on the group coverage provided by the employer and do not consider individual insurance plans. In case, an employee works for a long time in a company and then has to leave for some reason. If he/she wants to purchase an individual plan, he may end up paying a steeper price due to a higher age and medical fitness.

Conclusion

Group term plans are a good option for people who have started out in life. However, everyone has unique financial needs, and should not desist from individual insurance plans if the requirement is felt. Generally, group insurance plans are provided as a complimentary benefit by employers. Bajaj Allianz Group Term Life Insurance Plan provides adequate coverage and is tailor-made for employer-employee groups or non-employer employee groups. On Finserv MARKETS, you can browse through a variety of insurance plans, besides other products to take care of your financial needs.

Also read about other interesting retirement avenues such as ULIPs which provide high returns and tax benefits along with a life insurance cover.

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Bajaj Finserv Direct Limited ("BFDL"), erstwhile Bajaj Financial Holdings Limited is a registered corporate agent of Bajaj Allianz Life Insurance Company Limited and Bajaj Allianz General Insurance Company Limited under the IRDAI composite registration number CA0551 valid till 10-Apr-2021. BFDL also renders services to Bajaj Finance Limited (‘BFL’) and Bajaj Housing Finance Limited (‘BHFL’) (referred hereinafter as ‘Lending Partner’) in sourcing of customers, providing preliminary credit support activities, fulfilment services and post-acquisition customer services related to lending business. Registered Office: Bajaj Auto Limited Complex, Mumbai – Pune Road, Akurdi, Pune – 411 035 CIN: U65923PN2014PLC150522