Is Your Company’s Group Life Insurance Coverage Enough?

Many companies may have incorporated employee benefit programs wherein they provide their employees with added benefits besides compensation. One such benefit is life insurance coverage which employers buy for their employees. Group Insurance under employer-employee scheme, are such plans that an employer may buy for its employees to provide them with financial security.

But is the group life insurance coverage enough for your coverage needs? Let’s understand.

Group Life Insurance – The Concept

A group life insurance policy is one which is issued to cover a group of individuals, in this case, i.e. under employer-employee scheme, the employees of an organisation. Usually, term insurance cover is available under group plans, and it’s a one year renewable contract.

The sum assured under the group life insurance plan is usually determined by the employer and/or the insurance company. The premium can be paid by either the¹ –

• Employer
• Employees
• Jointly by the employer and the employee

Even if the claim is paid for one or few members of the group, the plan does not stop. It continues, undisturbed, for the other group members till the chosen tenure.

Benefits of Group Life Insurance Plans

Some of the benefits of group life insurance plans are as follows –

1. Easily Available

Group life insurance policies usually have easier underwriting policies. Each employee is not independently underwritten. There is a free cover limit until which all employees are covered without medicals. This varies between organisations. Anything over free cover limit may be underwritten individually. If the employer opts for the coverage, the insurance company underwrites the group as a whole and then issues the coverage². As such, an employee who might not get an independent life insurance policy, given his health or medical history, might get covered under the group plan. Pre-existing illnesses are generally not excluded.

However, the health details are normally sought and in case of any adverse issues there is an impact on pricing. For instance, an employee with a previous history of cancer might not get an individual life insurance plan. Or an employee with a high health risk might be rejected an individual coverage. However, if the employee is a part of the group, he/she might be covered under the group plan.

Moreover, if you join an organisation that has in place a group's life insurance coverage for its employees, you will be covered under the policy as you become a part of the group, subject to meeting of certain defined criteria if any that may be part of the group scheme.

These factors make the group policy easily available.

2. Cost-Effective

Group life insurance premiums are usually lower for each individual account holder than the premium of an individual life insurance policy¹ Moreover, if your employer is paying for the coverage, fully or partly, you can enjoy free or low-cost coverage.

3. Provides Financial Security

A group life insurance policy provides financial security against premature demise. Moreover, if your employer has opted for a group superannuation plan, you can create a retirement corpus for your golden years.

4. Tax Benefits

If you pay the premium of your group life insurance policy as an employee, you can enjoy tax benefits on the premium paid. For group term insurance plans, premiums paid would be allowed as a deduction under Section 80C3, and for group superannuation plans, you can claim a deduction under Section 80CCC³ of the Income Tax Act 1961, subject to provisions stated therein.

Limitations of Group Life Insurance Plans

While a group life insurance policy has its benefits, it has some limitations too. Have a look –

1. Limited Scope

The sum assured under group life insurance might be restricted as you don’t get the chance to choose it. Your employer and/or the insurance company might determine the maximum coverage granted to you. However, in some cases, employers allow you to enhance the coverage wherein you pay the additional premium. But if such an option is not allowed and your coverage needs are higher, the group life insurance policy might fall short.

2. Limited scope for Customisation

Lastly, many group life insurance plans do not allow you the facility to customise the coverage per your needs. Though there are plans wherein you can opt for the riders and bear the additional premium, such plans might not be selected by your employer. So, you might find it difficult to customise the coverage.

Is your Group Life Insurance Policy Sufficient?

As the group insurance plan might have the aforementioned limitations, it might prove insufficient. You might need an independent life insurance plan based on your financial goals. The individual plan would –

• Allow you to choose the coverage that you need.
• choose a longer tenure.
• Be independent of your employment history.
• Allow you optional add-ons as per availability and preference.

While the group life insurance policy is an added advantage, it is usually a good fit as a supplemental cover that supplements your existing coverage. Depending entirely on the group plan to fulfil your coverage requirements might not be feasible.

So, if you have an employer-sponsored group life insurance cover, you may consider using it to add another layer of financial protection. You may opt for an individual life insurance plan, based on your coverage needs, for an adequate and suitable coverage and financial security.

Reference

1. https://www.insuranceinstituteofindia.com/downloads/IC38/ALEnglish.pdf (Page 385)

2. https://nios.ac.in/media/documents/vocinsservices/m3-f6.pdf (Page 88)

3. https://cleartax.in/s/80c-80-deductions

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