Group Term Insurance




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    Group Term Insurance

    Term insurance insures an asset (in this case, your life) for a specified period of time (term). The peril insured in term insurance is death.Group Term Insurance therefore, is term coverage offered to a group of people (generally employees of an organization). This coverage provides a monetary benefit to the beneficiaries (generally the legal heir of the Insured employee) if the employee dies during the pre-defined period (the term).

    Insurance Meme Black & White 3 Vector Men - Group Health Insurance

    Why is Group Term Insurance important ?

    We, as individuals, do not understand risk. It could be an evolutionary thing, but we are just not programmed to understand let alone appreciate the fact that some calamity could strike us and we could be dead tomorrow.Because we do not understand this risk, we do not prepare for it - if your thought goes to the deduction for the pension plan, that is our investment to prepare for the long healthy lives we plan to live after retirement. The Government thus has to swoop in to give us exemptions on taxes so that we insure ourselves not only for medical emergencies but for unforseen calamities that could leave our loved ones bereaved, of our emotional support and more importantly the financial one. Even so, we have forced the market to design products that combine term plans with annuity, because again, we plan to live forever.But when we buy these hybrid products, the death benefit is a meager amount, which in most cases, is not even adequate to sustain the family's current standard of living, let alone sustain the financial blow meted by your physical absence.

    Have you ever noticed the sense of pride in the elder folk when they talk about their employers? This pride is rooted in the sense of belonging that their employers fostered, especially after untimely separation. The kind of goodwill such a sense of belonging creates is disproportionate, no amount of money can buy it. And that precisely is the reason why Group Term insurance is important. It creates that sense of belonging for you.

    Which are the insurance companies offering group term life insurance ?

    As of 2022, the Indian market is served by 24 Life Insurers who provide a Term cover. While the covers offered by most of the Insurers are comparable, service delivery is the one aspect a Client should not sacrifice on. The Group Term Life Insurance Policies are offered by almost all the companies. To name few - TATA AIA, Maxlife, Metlife, ICICI Prudential, HDFC Standard Life, Pramera Life, Reliance Life, Birla Sun Life etc.,

    Insurance Meme Black & White 3 Vector Men - Group Health Insurance
     Group Term life  Insurance

    Premiums for Group Term Insurance

    As with other types of Employee Benefits, Group Term insurance generally works out cheaper than Term insurance for individuals. The claim ratio in Group Term policies is also significantly on the lower side, especially for white collared workers. It is therefore one of the key pillars of most Employee Benefit programs. The premiums are based on the employee demography, the proposed sum assured, the company's death experience, and the nature of occupation of the employees. It is only recently that Insurers have started graduating to nuanced matrices that include aspects like geography for calculation of premiums.

    Salient Features of the Policy

    One master policy covers all members of the Group.

    Annual plans that give Employers the option of switching Insurers when service delivery is not satisfactory.

    Policy can be bought with a headcount as low as 10 employees.

    Total Sum assured is payable on death irrespective of whether the death is natural or accidental.

    Additional benefits include critical illness, disability & hospitalization covers.

    Addition and deletion of Group members on a pro-rata basis.

    No health tests required for Group members up to a defined sum assured limit which is called ‘Free Cover Limit’. Health tests applicable to members who have sum assured above the Free Cover Limit.

    Important aspects of Group Term policy

    • Mid Term addition deletion

      Mid term additions in the existing policy are allowed only by virtue of marriage or child birth, premiums are charged on a pro-rata basis; deletions are by virtue of death, premiums are retained in case of death, in lieu of the claim that would be settled.

    • Advance premium deposit with Insurer

      As per section 64Vb of the Insurance Act, the insurer can provide the risk coverage only after they have received the premium for the risk coverage. Accordingly, the Insurer maintains an advance premium deposit for group policies. As long as the Insured maintains adequate premium with the Insurer, the employee is covered from day 1 of joining/ or the day as has been underwritten in the policy. In the absence of adequate premium however, coverage starts from the date of receipt of premium at the Insurers end. Hence, it is advisable to maintain sufficient advance premium deposit balance with the Insurer.
      An enrollment tool to that effect should be capable of showing you the advance premium balance available at any point in time.

    • Can the Sum Insured be changed in the mid term of the policy?

      No, sum assured cannot be changed midterm unless the sum assured for the whole group or the hierarchy is being revised. Sum assured can also be changed if any person has been promoted during the policy duration and the new designation enjoys a higher sum assured.

    • Insurers require the following information for each member of the group

      • Date of birth
      • Date of Joining
      • Designation
      • Proposed Sum Assured
      • Declaration of any deaths in the three previous years
    • Are the benefits under the Group Term Life Insurance Taxable?

      Group Term Life Insurance provides tax exemption under Section 80 C. This exemption can be availed by (1) retail customers - who are paying premiums for their own policoes & (2) employers - who are paying premiums for group policies. Death benefits are also exempt from Income Tax under Section 10 D.

    • Free Cover Limit or FCL in Group Term Life Insurance policy

      The free cover limit in Group Term Life Insurance Policy is the amount of cover an employee gets without undergoing medical underwriting or submitting evidence for the required sum assured under the policy.

      The free cover limit as mentioned above depends on three factors which are given below

      • Group size
      • Sum assured per employee for the mentioned group
      • Age of Employee

      Employees who do not go through medical underwriting or are deemed high risk during underwriting will not be covered up to the sum insured and only have coverage up to the Free Coverage Limit.
      Let's say an organization wants to insure a 59 year old employee for 5 crores.
      An insurer may set a FCL limit of 2 crores based on the demographics. Thus, this employee's benefits are restricted to 2 crores until he goes through the medical underwriting process. Once the medical underwriting is completed, the insurer will increase his coverage to 5 crores. In the event that an employee fails to go through medical underwriting, or if the insurer declines to offer full coverage, only 2 crores of premium will be charged and the balance will be refunded.

    • How are premiums calculated?

      Group Term Life Insurance policies premiums are calculated based on the employee demography, the proposed sum assured, the company's death experience over the last 3 years, and the nature of occupation of the employees. The premiums will vary based on the group size and kind of industry. Premiums for white collared workers are generally cost effective. Premiums for blue collared workers are dependent on the kind of risk exposure.

    • Who can be the group term life insurance beneficiary?

      The Beneficiary or Nominee is to be declared by the PolicyHolder. They can be immediate family members, spouse / Children / Parent / a friend too. In case if the non family member is declared as nominee, They have to prove their insurable interest to the Insured. A nominee can be changed via a declaration to the Insurer, in case of a death the latest declaration is considered by the Insurer. One can also declare multiple nominees by mentioning the % of the benefit to each nominee.

    • Can the member carry the policy when they leave the group?

      No, all benefits under the policy are terminated when a member leaves the group.

    • Open Enrollment Period

      This is typically when the new policy is taken or when the renewal is done. This has a cycle of one year. All the employees have the option of enrolling into the policy by adding or deleting, making changes in the dependents list, opting in or opting out of optional covers. Once the submission is done, the coverage freezes for one year and no mid-term changes are allowed.

    • Actively At Work Clause

      The members of the group who are actively at work at the time of admission to the scheme will be covered subject to satisfying the “Actively at work” condition mentioned under the policy. An employee is actively at work which means that the member or employee should not have been absent for a continuous period of 10 or more days due to any health reasons such as illness, sickness or maternity leave at the time of taking policy. Those who are not "Actively at Work" would not qualify under the Group Term Life Insurance, unless they return to work and the organization informs the insurer that they are working again. This clause can be waived off for renewal of Group Term Life Policies during negotiations.

    • Death due to Suicide

      Normally death due to Suicide is excluded in any Term Life Insurance policy. However you can get it included in the Group Term Life policy with little loading in premium.

    How to fix the sum insured for Group Term Life policy ?

    Once you have decided on buying a Group Term Life policy for your employees, the next logical question is, how much should you insure employees for? How does one quantify the worth of an individual, to their family? What amount of payment would denote sincere gratitude as also be an appropriate amount that could take care of the family's immediate financial needs. Perplexing as the questions are, the best way to fix Sum Insured is to fix the slab for the largest amongst

    Sum Insured as per EDLI Sum Insured as per FSG x times CTC

    Communication (of benefits) is one tool that can create, magnify or destroy the value of the benefit being offered. Gustave Flaubert, who had famously said, There is no truth, only perception of it, couldn't possibly agree more. The way these benefits are perceived significantly influences the culture you are trying to foster. And therefore presenting a comparative analysis not only gives the Employer an edge, but can also safeguard them from any legal trouble arising out of demands for multiple payments under different heads like EDLI or FSG.

    Group Term Life in lieu of Employee Deposit Linked Insurance

    Insurance Meme Black & White 3 Vector Men - Group Health Insurance The governments in India have traditionally adopted a fatherly treatment toward people employed in various industries in the country. Manufacturing that formed the backbone of the country for a good five decades since independence employed a substantial chunk of the population. The state ensured that these employees led a tenable life after retirement by legislating laws to ensure pensions and gratuity. A growing gap was, however, felt toward financial security of families of employees who would die young and during the course of employment. This led to the enactment of the EDLI Scheme in 1976. The scheme was devised as an instrument to provide a financial guarantee for the families of employees who died during the period of employment.

    The EDLI scheme is thus comparable to the modern day Term insurance policy as offered by most insurers. EDLI is mandatory for setups that employ 20 or more people and the premium for the policy is to be borne entirely by the Employer @ a rate of 0.51% of wages. EDLI is applicable for employees whose salary does not exceed ₹ 15,000 per month; the maximum contribution toward EDLI for the employer is capped at ₹ 75 per month, which makes it an annual contribution of ₹ 900.

    The natural question that therefore arises is, why not offer a Term life cover to employees instead of EDLI? Let's look at a head to head comparison of some of the important aspects of the two products



    Term Life in lieu of EDLI

    Statutory requirement for coverage Salary < ₹ 15,000 per month nil.
    Maximum annual contribution maximum monthly contribution is capped at ₹ 75 which takes the maximum annual contribution to ₹ 900 nil.
    What benefits can be availed with such a contribution? Death Death
    Terminal Illness
    Critical Illness
    Minimum assured benefit ₹ 2,50,000 defined by the terms of the policy
    Premium payment non-discriminatory i.e. the Employers contribution is a function of the salary alone, age which is one of the most important parameters to decide on premium payment is immaterial positive discrimination i.e. a younger demography can get the Group Term cover for cheap
    Frequency of premium payment Monthly - before the 15 of the next month Annual, installment facility can be sought from the insurer in case of a large group
    Fine in case of default in payment to the EPFO starting @ 17% for a month to about 37% for 6 months Employers maintain a Cash Deposit account with the Insurer and keep enough funds in the account to ensure Day 1 coverage for new joiners
    Claim amount receivable Maximum benefit receivable is 35 times the average monthly salary in the last 12 months.
    Example - If the average monthly salary over the last twelve months is ₹ 15,000,
    EDLI = ₹ 5,25,000 i.e. (35*15,000) + bonus of ₹ 1,75,000 = ₹ 7,00,000
    defined by the terms of the policy

    Covid - 19 has intensified the war for talent; Employee Benefits were never as important as they are today. Employees want to work for Employers who are considerate, not only towards them, but toward their families, if and when need be. Employers therefore need to look at Employee Deposit Linked Insurance more as an attraction & retention tool than a statutory obligation, and that precisely is the reason why going beyond statutory obligations (especially when the cost incurred is practically the same) seems like too good an idea to let go.

    Group Term Life as Future Service Gratuity

    Here's another cracker.
    Say, your employee meets with an accident tomorrow, what are all the monies that the Organization would owe the Employee

    • Gratuity
    • Mediclaim settlements in lieu of any outstanding payments that would have been borne by the Employee
    • Provident fund

    Well, isn’t that a short list?
    What if, for a premium of about ₹ 50 per month you could insure the financial health of the employee's family till he would have retired. That is precisely what a Future Service Gratuity policy insures. The base calculations for the policy are the same as those used for calculation of normal gratuity. Just that, instead of using his tenure as the one you use for calculating gratuity, you use the balance tenure i.e. if the number of years for purpose of gratuity was 10 and the employee had a balance of 15 years of service left for superannuation, the calculation for Future Service Gratuity would be
    Future Service Gratuity = Last drawn salary * remaining years of service * 15/26
    Buying a future service gratuity therefore ensures that the feeling of gratitude that the policy was meant to generate is not lost in lip service.

    Exclusions under EDLI scheme

    • Suicide or self inflicted injury whether the member is medically sane or insane.
    • Taking part in any naval, military or air force operation during peacetime.
    • Taking or absorbing, accidentally or otherwise, any intoxicating liquor, drug, narcotics, medicine, sedative, poison or psychotropic substances, unless taken in accordance with the lawful directions and prescription of a registered medical practitioner.
    • Taking part in professional sport(s) or any adventurous pursuits or hobbies. “Adventurous Pursuits or Hobbies” includes any kind of racing (other than on foot or swimming), potholing, rock climbing (except on man-made walls), hunting, mountaineering or climbing requiring the use of ropes or guides, any underwater activities involving the use of underwater breathing apparatus including deep sea diving, skydiving, cliff diving, bungee jumping, paragliding, hand gliding and parachuting.
    • Terrorism, invasion, act of foreign enemy, hostilities, civil war, martial law, rebellion, revolution, insurrection, military or usurper power, riot or civil commotion. War means any war whether declared or not.
    • Committing an assault, a criminal offense, an illegal activity or any breach of law with criminal intent.
    • Inhaling any gas or fumes, accidentally or otherwise, except accidentally in the course of duty. The intent under this exclusion is to exclude accidental gas/fumes leak incidents which could lead to exposing the population to such toxic gas/fumes and lead to deaths (like Bhopal Gas Tragedy). However, if the incident happens as part of the life assured's' job then the claim is payable.
    • Participation in aviation other than as a fare-paying passenger in an aircraft that is authorized by the relevant regulations to carry such passengers between established aerodromes.