Group Insurance is when an organisation provides insurance to a group of people under a single master life insurance policy, which is typically a term or health insurance. A term policy is the simplest form of life insurance, wherein in case of the employee’s untimely death, his or her nominee receives a death benefit. The standard amount of coverage is either equivalent to a defined multiple of the covered employee’s annual salary or depends on the designation of the employee, and employers typically pay most or all the premiums.
In line with the company’s consideration for the well-being of its employees and their families, companies offer Group Life Insurance covers as part of the employee package. It is undoubtedly an attractive proposition. Nevertheless, it is also prudent to understand the benefits of an employer offered life insurance.
Some of the benefits that a Group Insurance provides, include:
- Assured Protection
For youngsters who are just starting their career, insurance is the last thing on their mind. The joy of being financially independent takes precedence over building a secure corpus. Life insurance will provide their dependents with the security they need, in case of any unexpected mishap.
- Saving On Premiums
Since your employer pays the premium, you can use the money for other necessities. Group insurance is ideal for people who do not have the financial means or are yet to take a personal life insurance policy.
- Customise Your Cover
As your requirements evolve, you can easily up your coverage substantially, in multiples of your annual salary, by paying an extra premium over and above what your employer pays. Most employers provide this choice.
- Rider Benefits for Additional Protection
In case your employer provides you with the option, you can purchase and add riders to your basic policy. Riders are optional, extra terms that provide added protection against future risks such as critical/terminal illness, accidental death, and total permanent/partial disability.
- Tax Benefits
The death benefit is exempt from taxation.
- Your Family Is Covered
In case of an employee’s demise while still employed with the organisation, the insurance pays a death benefit to the survivor(s).
Let’s look at an example of how a group cover can prove beneficial.
Mohsin Siddique, the only earning member of his family, was just two years into the organisation when he lost his life while on a monsoon trek. He was covered under the group life policy by his employer wherein the death benefit was paid to his mother. This enabled her to continue paying bills thus ensuring no financial distress during an emotionally difficult time.
Is Group Insurance Enough?
Certainly—Having your employer pay for your insurance is a blessing. However, Group Insurance serves only a specific purpose for a specific time. You need to assess your requirements to plug the uncovered needs (if any):
- The Policy May Be Insufficient To Cover All Your Needs
Employers typically provide a basic cover, which could work well for people without responsibilities. However, if you have dependents such as ageing parents, a non-working spouse, and/or children, the death benefit may not be sufficient to cover all their needs. Remember, inflation only spirals upwards. Secondly, the death benefit that replaces the salary does not consider one-time earnings, such as bonuses, commissions, and other benefits that the employee may have accrued during employment.
- Only Permanent Hires Are Eligible
For an employee to be eligible for group coverage, they must be a permanent hire. This means that if you are a contractual hire or part-time employee, you will not be eligible for cover.
- The Cover Ceases When You Change Jobs
If you change or lose your job, you also lose employer-provided life insurance. This means that till you find employment, you will be without the security of insurance. There is no guarantee that the next employer will give you insurance and even if they do, may not offer the same cover, as it will depend on your age and health status.
- A Better Cover Exists
Employer-provided insurance mostly includes only basic coverage, which may not fulfil your needs. They also do not include additional riders, which will need to be purchased by you.
The following cases better elaborate the above-mentioned disadvantages:
- Case 1: Suvarna Prabhu, a mid-level executive, was single when she joined her organisation. In the years to follow, she got married and had two children. Her parents also retired from their jobs and as Suvarna was their only child, the responsibility of looking after them fell upon her. Now imagine if anything were to happen to her, would the death benefit be enough to cover her children’s education and marriage costs as well as her parents’ rising healthcare bills?
- Case 2: Post Covid-19, Surabhi Shah’s company had to downsize and she was made a part-time employee from a full-time one. Her insurance stopped immediately and taking an individual policy proved to be expensive as she was in her forties and would have to pay a much higher premium.
One Size Does Not Fit All
Even if your company covers you, it is always a good idea to explore other insurance providers and purchase a supplementary personal policy that meets your present and future requirements. If you buy an additional policy when you are young and healthy, the premium is low. So, buying an individual policy will be affordable and offer you better coverage than the one offered by your employer.
Insurance is for the long-term. It must consider your future (and even post-retirement) financial needs. Life insurance offers many options, and you will find a plan that best meets your needs. There are five main types of insurance that may readily serve your desired requirements:
1. Term Plan
Term insurance is a pure risk plan that protects your future earnings and your family’s financial security. In the unfortunate event of an accident, illness, or death by natural causes, the plan is taken for a fixed term ranging from 10 to 40 years. The premium is fixed and must be paid to keep the policy valid. If the policyholder dies before the policy term ends, the nominee receives a death benefit.
2. Whole Life Plan
Whole life insurance covers you up to 99 years of age and provides a death benefit, survival benefit, and maturity benefit. This is ideal for retirement planning.
3. Unit-Linked Insurance Plan (ULIP)
ULIPs offers customised options that can evolve to your needs and priorities. ULIP offers a dual benefit of investment (stocks, bonds, or both) and insurance. While ULIP can be a great wealth generator, the returns are market-linked, which makes them subject to market risks.
4. Endowment Plan
Endowment offers the double benefit of insurance and savings, along with a certain level of guaranteed returns. It is ideal if you want to build a corpus for future needs. If the insured survives the policy term, the maturity amount is paid. If not, the beneficiary receives the sum assured.
5. Retirement plan
Retirement or pension plans offer the dual benefit of investment and insurance and guarantee a regular stream of income for your retirement years. Whole life insurance is a type of retirement insurance where the earlier you invest, the better. It will help you build a sizeable corpus thanks to the compounding effect.
Bottom Line
Employer-provided insurance along with a personal policy can cushion you from unexpected surprises and keep you always protected from risk. Nevertheless, it is worth purchasing an additional life insurance plan that is tailored to your needs. While employer group life insurance cover will give you coverage, just relying on it alone can be risky.
