Why is a group insurance plan more than just a workplace perk?

Being an employer comes with a host of benefits and responsibilities, the chief among them being ensuring the safety and security of your employees. One of the best ways to ensure this is to offer group term life cover. In this article, we will highlight all the significant aspects of group term cover plans.

What are group term life insurance plans?

Group term life insurance or GTLI, is a specific type of insurance coverage that you can purchase only through your employer or any other group like an association. This is called “group”, as the employer pays for it as a perk or a component of the compensation package. This article will highlight all the aspects of group insurance plans.

Advantages of GTLI

Now that you understand, what are group term life insurance plans, let's talk about some of the advantages of GTLI.

Cost-effectiveness: GTLI plans are considered to be comparatively much more cost-effective than individual plans.
Guaranteed acceptance: These plans usually offer guaranteed and assured acceptance, which implies that you are never denied insurance coverage based on your health status.
No medical screening: No pre-term medical screening is essential while getting GTLI coverage.
Employer contribution: Group term plans are usually offered by employers and they also clear the premium dues. This makes it an essential asset for the employees.

Disadvantages of GTLI

Although group term plans prove to be very significant for the employees, they also have their bundle of disadvantages:

Limited coverage: Group term plans come with a comparatively limited coverage amount than any standard individual insurance plan.
Limited customisation: The group plans are comparatively much stricter with much-restricted customisation opportunities. You cannot tailor the policy according to your requirements. You have to accept the plan as it is offered to you.
Coverage loss: If you discontinue working with a particular employer or organisation, you will stop enjoying these insurance coverage benefits.
Zero cash value: These insurance policies do not offer any cash value. This means that you cannot receive any returns on the premiums or borrow against the plan.

How does a group term plan work?

The working strategy of a group term plan is unique:

Group coverage: The concerned organisation or employer purchases a term life from an insurance company to cover a small or large group of individuals like employees or association members.
Coverage amount: The concerned employer or the organisation determines the insurance coverage amount. It is usually based on the salary of the employees or a fixed flat amount.
Premiums: The employer usually clears the premium dues. However, at times, the employer may even contribute to the premium costs through payroll deductions.
Zero medical underwriting: One of the most significant advantages of group term plans is that they do not require pre-policy medical screening or underwriting.
Death benefit: If any insured employee passes away while working for the organisation, the concerned insurance company pays out the death benefit to the designated beneficiary. This benefit usually comes in a lump sum and remains tax-free under general circumstances.
Coverage period: These group plans are annually renewable. However, the coverage gets automatically terminated if the employee leaves the organisation or retires from work, depending on the terms of the active plan.

Types of Group Term Life Insurance

The group term plans can be broadly classified into 2 components:

Employer-sponsored GTLI: This is further classified into 2 variants: basic GTLI, where the employers offer this insurance to his/her employees as a standard benefit. The employer pays the premium dues and the coverage amount is determined by the employee’s salary. The other one is supplemental GTLI, which is an additional coverage that employees are eligible to buy alongside their basic insurance coverage. Here, the employee needs to pay the premiums.
Non-employer sponsored GTLI: These are classified into 4 variants: Association GTLI, which is offered through an organisation or association. The members can buy it at a discounted rate. Affinity GTLI is similar to this type; however, it is offered to members of a particular affinity, such as an alumni association or credit union. Credit life insurance is offered by lenders to the borrowers. The plan pays the debts if he/she passes away before loan repayment. Wholesale GTLI is sold to a particular group, like a labour union or corporation, at a discounted price. The coverage gets distributed among the members.

Inclusions

A standard GTLI allows coverage that protects you and your family in the face of any unfortunate event. The general inclusions of GTLI include:

Death benefit: You can utilise the death benefit for anything, depending on your requirements.
Living benefit: The living benefit is similar to disability insurance coverage. In case you become unfit for work due to any illness or injury, your GTLI will continue your payouts till you are fit enough to restart your work.
Accelerated death benefit: This allows individuals with terminal ailments or suffering from any incurable disease like Alzheimer’s or dementia. They can easily access the necessary funds from these policies early and tax-free.

Exclusions

Some of the standard exclusions of GTLI include:

Suicide: If any employee commits suicide, the beneficiaries may not receive the death benefits.
Dangerous activities: For any injuries caused by voluntary involvement in any dangerous activities, you will not receive any policy money.

Conclusion

Group insurance plans prove to be an asset for the employees, as it does not consider any health status screening. It comes to you with your employment. Depending on your condition, you may acquire additional insurance plans or other individual policies to ensure optimum coverage for your beloved family members.