How is Group Term Life Calculated?
Group Life Insurance
Let us first understand what group term life insurance means. In simple terms, Group Life Insurance Plans, as per the name, offer life insurance to a group of people under a single policy. Other than proving to be cost efficient, it also provides similar benefits as compared to individual life insurance policies.
Group term life insurance is a unique insurance plan designed to protect the employees. A group term insurance plan is included in a company’s benefit package at no cost to the employee’s salary. The employer or other entity retains the actual insurance policy, known as the master contract, as the policy owner. Everyone who is insured typically receives a certificate of insurance, which serves as a proof of insurance, but is not the actual insurance policy. Group life insurance, like other types of life insurance, allows the employees to select their beneficiaries.
The organisations ensure to highlight the presence of a group term insurance in the compensation package while hiring an employee. The extensive coverage offered by the group insurance is a lucrative factor, making the potential employee turn in favour of the company. It allows the organisation to not only hire and retain the best available talent in the market, but also gives them competitive advantage.
Now that we have understood what a group insurance cover means, let us move further to understand the process of availing a group term insurance.
Step 1 – Check the number of employees covered in the policy. Estimate the sum assured required for the number of employees.
One can choose from multiple options such as:
– Multiple Salary (better suited for firms with varying compensations for same level employees)
– Full coverage for all employees (suitable for small organisations, Startups, etc.)
– Cover graded (suitable for large organisations with multiple hierarchies)
Step 2 – Premium calculation
This is done after adding the riders, which are additional benefits on the insurance policy, like accidental death coverage, permanent or temporary disability and critical illness.
After selecting every rider and policy coverage, one can get an estimate of the premium, considering the age of all the employees, no. of all the employees and other factors such as dependants of all the employees.
Hence, it can be seen that the process of availing the policy is quite simple.
Group term life is calculated based on several factors such as the age of the employees, their current medical condition and prior history of illness. It is crucial to note that employees having similar characteristics are categorised in a group. Only when employees having homogeneous traits are grouped together, is it possible to work out the term life. The premium cost is low as the risk of the policy is spread out against all the members covered therein.
Below are some of the advantages that an employee gets when covered under a group life insurance.
- As soon as an employee starts their employment in the organisation they are eligible for all benefits under the plan.
- Gratuity funding is provided to employees by building up small funds over the period of employment.
- There is no mandatory requirement to undergo medical checkups before availing the group insurance plan.
- The policy provides add-ons such as education allowance for the employees’ children, accidental cover, repatriation cover, and critical illness cover.
- The term life plan extends tax benefits to both the parties- the employees and the employers.
- Under Section 10(10D) of the Income Tax Act, 1961, the death benefits transferred to the nominees are exempt from tax.
- There are measures in place to ensure due support is offered at the time of unforeseen circumstances.
The employees are motivated to do their job in the most effective and efficient manner. It encourages them to be loyal to their commitment towards the organisation. This is possible because they are aware that in case of any unfortunate incident, their dependents will be taken care of. Employers must take extra care and be cautious regarding choosing policies for including benefits to dependents.
Improved employee performance helps the organisation to stay ahead in the game as it boosts overall organisation business. It also reduces employee attrition.
Group term life insurance is an extremely beneficial product to safeguard the most valuable asset of the organisation, i.e., the workforce. The insurance benefits can be availed at any time from anywhere at the network hospitals with the help of a digital ID card. The employees can check out how to avail a digital ID card and follow the basic steps. They should read the terms and conditions of the plan carefully as all the benefits attached will be delivered as per the terms. To make the best possible use of it, a smart study should be conducted.
The employers must ensure that they analyse all the available term life plans carefully. A prior assessment of employee’s needs and requirements must be carried out to summarise their basic needs. The term life plan which offers the maximum possible coverage at an affordable cost for a longer life period should be selected. This will ensure financial independence and help the organisation and employees to focus on other important tasks at hand.