Group insurance, simply put, is life insurance protection to a group of people. Under the IRDA guidelines, groups can be an employer-employee arrangement or otherwise. This scheme is ideal for employers, associations, societies etc. A group policy extends to anyone irrespective of their age, gender, profession or social background.
Group insurance policies can be classified according to the functions they serve. One can get a simple term group insurance policy, which pays the sum assured to the family if any member of the group dies.
A gratuity insurance policy provides a company with an investment option to build a pool of funds that can be used to pay off the gratuity amounts after an employee finishes five years in an organisation.
A group superannuation scheme serves as a retirement plan wherein the amount that is accumulated over the empl-oyment term is released upon retirement. Besides these, other classifications include group savings insurance policy, which can be used as a savings tool for the members to accumulate wealth along with life insurance and credit protection, which covers any loan after the death or disability of the borrower.
Group insurance is a beneficial, cost-effective and hassle-free insurance option that provides at least a minimum cover to the members as a benefit of being part of that particular group. The biggest advantage of group insurance plans is that they provide cover to the member or employee simply because they belong to that particular group, an alternative very helpful for those without any other insurance cover.
Tax benefits are another advantage for members of group insurance. Most group insurance plans are for the benefits of employees in an organisation.
While beneficial on one hand, there are several shortcomings to group insurance plans, which need to be considered. Any benefits of a group insurance plan are only applicable as long as the person is a part of the group.
If a member of the group develops a health condition after the policy is issued, it may become more expensive to buy an individual life insurance policy, since the group is already underwritten.
Also, the features and options for group insurance are considerably limited, so it may be difficult to get the desired cover while applying for individual policy with a pre-existing health condition.
A group term life insurance may be to the employee’s benefit but its sum assured is usually limited. The cover may not be enough to support the individual or his family.
The premium for group insurance is assessed based on the risk to the group as a whole. The premium contribution is usually done in one of two ways. Either the entire premium amount is paid by the company that has purchased the policy for its employees or the premium is partially paid for by the insurer, while the rest of the amount is paid by the members of the group. Since a group insurance plan covers all types of risk profiles under a single policy, its premium is lower than an individual policy.
(The writer is the CEO of Policybazaar.com)