What is group life insurance?
As the name implies, group life insurance schemes (GLIS) are designed to meet the insurance needs of a specific group of people. Group plans are generally taken by employees of a particular organisation. As per the Miscellaneous Provision Act of 1952, the EPFO has made it mandatory for all employers to offer life insurance coverage for employees.
Besides employers, group life insurance schemes are also taken by the members of employee welfare associations, residents of society, professional associations like Civil Engineers’ Association, medical professionals, credit/debit cardholders of a single provider, customers of a specific bank/lender, etc.
The significant advantage of taking a group plan is that it is cheaper than individual life insurance policies. Generally, in a group plan, the owner of the plan is the employer or an organisation. All employees or members of that organisation enjoy the coverage benefits of the policy.
In 2014, group insurance plans accounted for 41% of the total insurance market in India. Though most organisations offer group plans for their employees, not many know the different types and benefits of these plans. In this guide, let's take a look at the popular categories of group plans in India and their advantages.
Classification of Group Life Insurance Plans
Group plans can be broadly classified into two types:
A contributory group life insurance plan is one where members of the group pay the premium partially or in full, to enjoy the benefits of the insurance cover. For example, some employers deduct a percentage of the employee’s salary to pay for the premium.
In this type of group life insurance plan, group members do not have to pay anything to avail of the benefits of insurance coverage. Let's suppose the cost of the premium for all employees is borne in full by the employer. In that case, it is an example of a non-contributory group plan.
The 5 Popular Types of Group Life Insurance Plans in India
Group Term Life Cover
It's a term plan that is offered to all the members of a specific group. It works similarly to individual term life insurance. The salient features of group term life cover are:
Death, disability/dismemberment benefits
Low premium costs
Zero maturity value, i.e., the policy doesn't offer any cash benefits on maturity
No medical examination while signing up for the plan – you are automatically enrolled in the plan when you join a new company that offers the plan.
Group Unit Linked Insurance Plans
Also known as Group Gratuity Plans, Group Unit Linked Insurance Plans (GULP) are similar to individual ULIPs. These plans offer the double benefits of insurance cum investments. A portion of the premium is reserved for life cover, and the remaining is invested in equities. Participants of this plan can choose from a range of equity and debt-based funds to invest the premium.
The invested amount grows over time. Generally, most employers offer employees the option to withdraw the corpus at the time of retirement, or when the employee quits the job.
Group Pension or Superannuation Plans
Group pension plans are offered by employers to help employees build their retirement corpus. It’s considered an alternative to other popular retirement investment plans like the EPF and NPS.
The funds invested in these plans grow over a long period, and help employees enjoy a large corpus at the time of retirement.
Group Personal Accident Insurance
It's similar to individual personal accident plans. The only difference is that it's offered to a group. Generally, most employers, card issuers, and lenders offer group personal accident cover to their employees and customers. The coverage provided by this plan compensates for the cost due to accidental injuries leading to hospitalisation, partial or permanent disability, and even death.
One significant difference between the term plan and accident plan is that the term plan compensates only in the case of the policyholder's death. On the other hand, the personal accident insurance plan pays for the sudden loss of the insured's earning capacity while also covering hospitalisation costs.
Group Employee Deposit Linked Insurance (EDLI)
This insurance plan is offered as part of the EPF (Employee Provident Fund). The benefits of these plans depend on the contribution made by the employee to the PPF scheme. Currently, the EPFO (Employee Provident Fund Organisation) offers disability/death benefits up to Rs. 6 lakhs for employees covered under this plan.
Benefits of Group Life Insurance Plans
Though it is the employee who enjoys the coverage benefits of group life plans, it offers an array of other benefits to the employer. Let's take a closer look at the various benefits provided by group plans.
Default Insurance Cover for all Members of a Group
An individual can enjoy life insurance coverage just by being part of a group. For instance, new employees are added automatically to the company's group cover at the time of commencing the job. This is a massive perk for individuals who do not have a personal life insurance policy.
No Medical Check-ups
Employees do not have to go through a medical check-up to participate in the group life plan. This eliminates the hassles of individual medical check-ups for each employee.
Group plans offer tax benefits for both employees as well as employers. The death benefits provided to employees by group life insurance are tax exempted under Section 10(10D) of the ITA.
By investing in an insurance cum investment plan like group ULIPs, employers can systematically build funds for gratuity liability of employees. These plans offer a considerable retirement benefit for employees. This helps in increasing employee retention while improving employee loyalty to the employer.
Flexibility to Meet the Needs of Each Employee
Group plans can be customized with add-ons like repatriation allowance, education allowance, accidental death, etc. thereby providing employees with extensive coverage.
This is one of the most significant benefits of group plans. Since many people are covered under a single policy, it reduces the associated administrative costs, which, in turn, decreases the cost of premiums.
Generally, most group life insurance policies offer worldwide coverage. For instance, if the insured dies overseas, the nominee will receive the policy's benefits in India.
In India, group life insurance plans are offered as an incentive to workers and double-up as employee benefit schemes. These plans not only cover employees but can also be extended to include their families as well. It helps millions of workers belonging to the lower sections of the society enjoy life insurance coverage at nominal costs.