As an employer, you will certainly want your employees to have a fulfilling life. One of the main concerns of people is the financial security of their loved ones. If you want to relieve your dedicated employees of this worry, it’s a good idea to cover them under group insurance. One of its popular types is group term insurance. Read on to know about how it works and why you should opt for it.
What Is Group Term Insurance?
In this kind of insurance, coverage is offered to a group of individuals under a single plan. If the insured passes away during the policy term, the beneficiary or the nominee receives financial protection.
A group term insurance plan usually has a master policyholder (here, you as the employer) who functions as the prime administrator on behalf of the insured members.
Buying group insurance is comparatively more inexpensive than purchasing an individual cover for each employee. The group plan remains active till the end of the policy term or the termination of employment of the covered member.
How Does Group Term Insurance Work?
As the master policyholder, you need to issue the sum assured to your employees through the chosen group insurance plan. Then you can decide the amount of life cover you’d like your employees to receive. There are two options for that as follows:
- Flat cover: In this case, similar life coverage is offered to all the members.
- Graded cover: Here, life coverage is offered to members based on your company’s hierarchy levels.
The sum assured is usually linked to the employee’s salary or the member’s loan amount. In the first case, the amount of the life cover equals a multiple (often up to 2 times) of the person’s annual salary.
Usually, you need to pay the whole premium amount of a group term insurance policy. However, sometimes, you have to pay the major part of it while you can deduct the remaining amount from the member’s salary. The premium amount depends on various factors like the average age of members, the number of members covered, the size of your organisation, and so on.
Benefits of Group Term Insurance
|Benefits for Employers||Benefits for Employees|
|A cost-effective way to cover multiple individuals under one plan at low premium rates.||Cheaper than individual term insurance and the premium payments are managed by the employer.|
|Easy to add or delete members to/from the policy.||Simple paperwork and no hassle of medical tests to avail the plan.|
|Premium payments that you make are eligible for tax deductible under the Income Tax Act, Section 37(1).||Tax exemption benefits are available under the Income Tax Act, Section 10(10D).|
|Highly helpful to retain employees.||Highly helpful to financially protect the family members of the insured in the case of the person’s death.|
When you consider buying group term insurance, look for attractive features like a lumpsum payment of the sum assured in the event of the demise of the insured member.