Term life insurance is a necessary financial product that provides peace of mind to the policyholder and financial security to the beneficiaries. It assures the policyholder that their loved ones will receive financial compensation if he/she were to pass away under unfortunate circumstances. Various kinds of term life insurance policies are available in the market. If you are seeking to buy life insurance for a large group of people, then you may be interested in a group term life insurance policy. In this kind of policy, multiple people are covered under a single contract. Due to its expansive nature, there are certain restrictions and conditions as to who can buy a group term life policy. Let’s learn more about the same below.
What is group term life insurance, and does it work?
It is important to understand how a group policy works to better comprehend the eligibility process for it. A group policy provides life coverage to multiple people but is owned and handled by a single person, who is also called the master policyholder or the administrator. This individual decides the different coverage elements of the policy. As per the coverage chosen, a premium is determined. The premium is obtained from the members via different methods.
In a corporate organisation, the premium may be deducted from the salary of the employees. In non-corporate environments, the premium is automatically debited from the member’s bank accounts. The benefits of a group policy can be enjoyed by several kinds of organisations.
Which groups can buy group term life insurance?
The following kinds of groups can opt for a group term life policy:
- Employer-employee groups, such as corporate organisations and companies
- Non-employer-employee groups, such as consumer groups, member associations, non-profit organisations, co-operative societies, and so on.
Essentially, any self-interest group can buy a group life insurance policy as long as that is not the sole aim of the group’s creation.
Aside from this categorisation, there are some conditions that each group must comply with to be able to buy a group term life policy.
Conditions to buy a group term life policy for employer-employee groups:
- Life coverage will be available only to employees that work full-time and are permanent members of the organisation.
- Volunteers, interns, part-time employees, and the like may not receive coverage under the group term life insurance
- The employee must be within the age range prescribed by the insurer to receive the coverage. In most cases, the age range is 18-70 years.
- In the event of an employee being absent on a prolonged leave that is not acknowledged by the company, the life coverage will be forfeited.
- To continue receiving coverage even when on a leave due to an illness or accident, the employee must provide a health declaration during the policy’s registration.
Conditions to buy a group term life policy for non-employer-employee groups:
- As mentioned earlier, there should be a common link between the members of the group other than the aim of buying a group policy. Customers of the same bank, members of the same co-operative society, professionals working in the same domain, etc. can apply for a group policy.
- The members of the policy must specify their relationship with the group and the master policyholder to be eligible for the coverage.
- Members must be within the age limits determined by the insurer.
Can members of a group policy obtain separate coverage of their own?
It may happen that the group’s coverage may be deemed insufficient by some members. In that event, the member has two options:
- Opting for separate additional coverage under the group plan (if available)
- Opting for an individual life insurance plan
In the first option, you can increase your sum assured amount or opt for term insurance add-ons by paying an extra premium under the group plan. Many organisations offer this feature. The one disadvantage of a group plan is that you cease to receive the coverage once you exit the group/ organisation. To ensure continued coverage, you can opt for a separate term policy of your own.
We hope this article has deepened your knowledge of what group term life insurance is. Do consult a financial advisor prior to making any major financial decision.
Raj Kumar is a qualified business/finance writer expert in investment, debt, credit cards, Passive income, financial updates. He advises in his blog finance clap.