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Did you know? A few private companies offer group term life insurance to their employees as a part of their salary package. Though it’s a notable perk for every employee, ensuring if it suffices your financial needs is essential. Corporate term life cover entails limitations, and hence it can be insufficient for most individuals. Let's take a deep dive into understanding whether you must supplement your group term plan with individual term life insurance.

What is Group Term Insurance?

Group term insurance offers life coverage to employees, which ensures their families are financially secure. With this insurance cover, the employer pays the premium. In case an employee dies, the sum assured is paid to the employer to settle the account with the nominee of the insurer employee. The tenor of a term life plan is one year and is renewed every year. While there are companies that offer uniform covers to all employees, a few provide ranked covers based on the grade of every employee. However, you must note that riders like critical illness benefits, accidental death benefit, accidental disability benefit, etc. might not be available in most group plans.

Limitations of a Term Life Cover

Here are a few limitations of a term life cover.

 

Standard cover

Many companies offer their employees a standard cover irrespective of their financial condition. However, most people fail to realise that the extent of life cover required depends on the individual's age, financial position, number of dependents, health issues, and other factors. If you are single or have a working spouse without a child or dependents, a group term insurance plan can be considered as a sufficient cover for you. However, everyone else might need a better and customised plan.

Portability issue

When a cover is associated with your employer, you are compelled to be in the same organisation until retirement. If you choose to quit, you will also lose the term life insurance cover. Even if your group term insurance facilitates portability, it is often at a higher cost. Term life insurance revolves around factors like your age, family members, health condition, etc. For example, switching to a different insurance company at the age of 40-50 with a few health conditions could hike up the premium rate.

Losing tax benefits

People paying term insurance premium amounts are entitled to income tax deduction under Section 80C of the Income Tax Act. However, since you are not the one paying the premium for the group term plan, you cannot claim tax benefits.

What Should You Do?

To begin with, you must assess your needs and your dependents' lifestyle. This will help you choose a plan that will provide enough money, ensuring your dependents don't compromise on their lifestyle. Also, if you have kids, you might want to go for more years of income. Buying term life insurance is like cushioning the blow. Though it cannot fill the void, it manages to mitigate the financial stress. So, if your child has 10 more years to go before he/she could enter the job market, you would need to ensure financial protection for these 10 years.

 

Now that you know how group term insurance offers limited benefits, it is time you opted for individual life cover and fill in the gap. At Finserv MARKETS, you can get yourself an extensive term life insurance cover and riders, helping you customise the plan for your family.

FAQs on Corporate Term Life Insurance

  • ✔️What is the purpose of corporate term insurance?

    A corporate term insurance policy offers financial protection for a stipulated duration.

  • ✔️Do I need to supplement my corporate term insurance with individual term insurance?

    Corporate term insurance policies do not take individual preferences into account. Hence, you can gauge the coverage offered by your company and decide whether you need additional cover.

  • ✔️What are the limitations of a corporate term insurance policy?

    Most companies offer a standard and basic cover to avail tax benefits. Hence, there is a higher possibility that the coverage offered by group term insurance might fall short. Additionally, unlike individual term life insurance policy, you cannot avail tax exemption under Section 80C.

  • ✔️Does a term plan cover natural death?

     Yes. A term plan covers accidental, illness-related, and natural death.

  • ✔️Why is corporate term insurance not the best option?

    Along with limitations like zero tax benefits, corporate term insurance entails a major drawback: what if you choose to switch jobs or start your own business? You might have to buy a new cover if the new employer doesn’t offer a term plan cover.

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