Know why a Group Life Insurance Policy is Ideal

In today’s day and age, insurance is an investment that forms a critical pillar of financial planning. While investment in the right avenues is important, it is also crucial to have a safety net for your dependents in your absence. A life insurance policy is a perfect investment that creates a financial backup to meet your family’s financial needs.

There are various life insurance plans that are available in the market. Choosing a particular plan is a personal requirement and must be accordingly decided upon. Whole life plans, term plans, endowment plans and ULIPs are some popular alternatives. But a lesser-known policy is the group life insurance cover let us learn all about what a group life insurance is.

What is group life insurance?

A group life insurance cover is a policy that covers all the members of a pre-existing group under a single master policy. This policy offers a standardised life insurance cover to all the members within the group irrespective of socio-economic background, age, gender, or profession. Groups, for this purpose, can be formal (employee-employer) or informal (non-employee-employer) groups.

For formal groups, its members consist of employees of an organisation, corporation, or a company. The employer purchases a master group life insurance policy that provides coverage to all its employees.

On the other hand, informal groups consist of members other than employees of an organisation. Instead, holders of the same credit card or members of cultural or social organisations are categorised as informal groups. The group administrator on behalf of all members buys the master policy to safeguard its member’s life.

Why are group life insurance plans an ideal choice for many?

Group life policies are ideal for the following reasons:

• Affordable Group Premiums

The term insurance cover offered under a group life insurance offers policies at a much lower rate than what an individual would pay otherwise. Since the rate of premium is much lower, an individual can take advantage of the higher sum assured for the same premium payment. The insurance companies prefer to insure large groups to make such affordable premiums available. However, the insurers also extend simple term protection for groups of at least 25 people. These group life insurance plans are renewable at the end of each period by payment of premium by the master policyholder, an employer, or the group administrator.

All the employees under this group policy are automatically covered and those retiring or leaving the group, cease to receive any further benefits. Depending on the master policy’s terms, the sum assured can be different for different grades of employees, and accordingly, the premium varies. These group life insurance policies can also be customised depending on an individual’s requirement using riders that offer broad protection like coverage for accidents and permanent disability.

• Continuous Protection

Critical illness riders are also sought after in a group life cover these days. The rise in the cases of life-threatening ailments is a reason for it. The non-life policies offered under group health plans provide coverage for critical ailments. Similarly, group life insurers also extend this feature. Based on the mortality experience of the insurance companies, they either offer broader insurance coverage at the same premiums or lower the premiums for equivalent coverage.

The optional critical illness rider ensures uninterrupted coverage for the policyholders as the individuals get coverage for life-threatening illnesses without undergoing the hassles of submitting myriad forms and medical reports.

The way how an individual contributes to the premiums for these policies already exists in place. For instance, employers deduct the employee’s contribution through their salary while the premiums are charged to savings accounts for informal groups.

For borrowers at a bank, the mortgage redemption policy can also be purchased via these group life insurance schemes. This premium for such a mortgage redemption plan can either be paid at the time of borrowing or choose to pay an additional amount with their monthly instalments. In the event of an unfortunate demise of the policyholder, the bank will not demand the balance amount of the loan from the legal heirs. Instead, the insurance company will pay any outstanding amount to the lender. This can be an effective way to avoid any burden on your dependents for any financial liabilities in your absence.