Did you know that despite the importance of life insurance, only a small fraction of companies offer Group Term Life Insurance (GTLI) as an employee benefit?
In fact, a recent survey by SHRM found that less than 5% of Indian companies provide GTLI coverage to their employees, despite its numerous benefits.
Some HRs, founders, finance and insurance teams believe it's too expensive, others haven't even heard of it, and some fear spam calls and being misled about insurance products.
While HR leaders understand the importance of providing comprehensive benefits to attract and retain top talent, it is important to understand that GTLI is a must-have benefit that can not only improve employee satisfaction but also increase loyalty towards the company.
It offers a lump-sum payment to the employee's beneficiaries in the event of their death, providing peace of mind and financial security during difficult times.
Compared to individual term insurance, group term life insurance is more affordable. When companies purchase coverage in bulk, they can negotiate lower rates and provide their employees with more comprehensive coverage at a lower cost.
But with so many insurance providers and options out there, who can you trust when it comes to buying a term plan? It can be overwhelming but don't worry, we've got you covered.
What is Group Term Life Insurance (GTLI)?
Group-term life ensures that your employees receive financial support in the event of their untimely death during the policy term.
While individual-term life insurance is a policy that an individual buys to cover themselves against the risk of premature death, Group-term life insurance (GTLI) is a policy that provides coverage to a group of individuals, such as employees of a company or members of an organisation.
The employer is the master policyholder, and the GTLI coverage is provided to the employees under a single contract.
If an individual decides to leave their employer, they have the option to convert their group coverage to an individual policy, but the premiums for this conversion tend to be higher than policies available to individuals.
Understanding the difference between Individual Term Life Insurance and Group Term Life Insurance
Types of Group Term Life Insurance
- Basic Group Term Life Insurance: This is the most common type of group term life insurance. It provides a set amount of life insurance coverage to all members of the company, usually based on their salary or a flat rate.
- Supplemental Group Term Life Insurance: This type of group term life insurance allows employees to purchase additional life insurance coverage on top of the basic coverage provided by the employer.
- Dependent Group Term Life Insurance: This type of group term life insurance provides coverage for the dependents of the members of the company, typically spouses, parents and children.
- Voluntary Group Term Life Insurance: This is similar to supplemental group term life insurance, but it is entirely optional for employees. Members of the group can choose to purchase additional life insurance coverage for themselves, and they pay the premiums themselves.
- Contributory Group Term Life Insurance: In this type of group term life insurance, the employee and employer share the cost of the premiums. This type of plan is typically used to provide more significant coverage amounts to employees.
Each type of group-term life insurance has its advantages and disadvantages, and it's essential to evaluate each option carefully before making a decision.
Continue reading: What Is A Contingent Beneficiary?
What are the Benefits of Group Term Life Insurance?
What does Group Term Life Insurance cover?
- Death benefit: The primary purpose of group-term life insurance is to provide a death benefit to the beneficiaries of the insured individual. This benefit is paid out tax-free in a lump sum or as regular payments to the beneficiaries upon the insured individual's death.
- Accidental death and dismemberment (AD&D) benefit: Some group term life insurance policies also offer an AD&D benefit, which provides an additional payout in the event of accidental death or dismemberment, such as the loss of a limb or sight. This benefit may be included in the policy or offered as a rider.
- Accelerated death benefit: This is another feature of some GTLI policies. It allows people who are terminally ill or have an incurable condition like Alzheimer's disease to access funds from their policies early without having them taxed as income. This means they won't have as much taken away from them when they cash out their policy early.
- Terminal illness benefit: Some group term life insurance policies also provide a terminal illness benefit, which allows the insured individual to receive a portion of their death benefit if they are diagnosed with a terminal illness and have a limited life expectancy, typically less than 12 to 24 months.
- Living benefit: GTLI also offers a living benefit, which is similar to how disability insurance works. If you become unable to work due to illness or injury, GTLI will pay out until you're able to return to the workforce and earn enough money on your own.
What is not covered by Group Term Life Insurance?
While Group Term Life Insurance (GTLI) can provide valuable coverage for employees and their beneficiaries, there are some things that are not typically covered by this type of insurance.
For instance, if you have a pre-existing medical condition like high blood pressure or diabetes, the insurer may deny coverage for claims related to that condition. In this scenario, the insurer will not pay out on any claims made due to your pre-existing condition.
But that's not all, there are also other situations where an insurer may deny coverage under GTLI policies.
- Suicide: Group Term Life Insurance policies often include a suicide clause, which states that the policy will not pay out a death benefit if the insured individual dies by suicide within a certain period after the policy is issued, typically two years.
- Adventure sports: Some GTLI policies may exclude coverage for certain high-risk activities, such as skydiving or bungee jumping. If the insured person dies while participating in one of these activities, the death benefit may not be paid out to beneficiaries.
- International travel: GTLI policies may not cover deaths that occur outside of the policy's coverage area. For instance, if the insured person dies while travelling outside of the country, the death benefit may not be paid out to beneficiaries.
- Terrorism: If the insured person dies as a result of a terrorist attack or during a war, the death benefit may not be paid out to beneficiaries.
- Pre-existing medical conditions: Some GTLI policies may exclude coverage for certain pre-existing medical conditions. If the insured person dies as a result of a pre-existing condition, the death benefit may not be paid out to beneficiaries.
- Criminal activity: If the insured person dies while committing a crime, the death benefit may not be paid out to beneficiaries.
Overall, it's important to carefully review the terms and exclusions of a GTLI policy to understand what is and is not covered. While GTLI can provide valuable coverage, there may be limitations and exclusions that could impact the payout of the death benefit to beneficiaries.
Who is Eligible for Group Term Life Insurance?
Group Term Life Insurance is a cost-effective option that enables organisations to extend life insurance coverage to their employees who might not be able to afford it individually.
The following groups may be eligible for group-term life insurance:
- Employer-employee groups: One of the most common groups eligible for group term life insurance is employer-employee groups. Many employers offer group term life insurance as part of their employee benefits package to provide financial security to their employees and their families.
- Non-employer-employee groups: Individuals who are not employed by a particular company but are part of a group, such as members of a professional association or a trade union, may also be eligible for group term life insurance.
- Small medium enterprises (SMEs): SMEs may be eligible for group term life insurance policies, which can provide cost-effective coverage to their employees.
- Microfinance institutions: Microfinance institutions may offer group term life insurance to their clients, which can provide a safety net to their borrowers and their families in case of unexpected events.
- Banks and non-banking financial institutions: Banks and other financial institutions may also offer group term life insurance to their customers as a value-added service.
- Professional groups: Professional groups, such as doctors, lawyers, or engineers, may offer group term life insurance as a membership benefit to their members.
- Startups: Even startups can benefit from group term life insurance, which can provide financial security to their employees and their families, helping attract and retain talent.
It's important to note that eligibility requirements can vary depending on the policy and the organisation offering it. It's always a good idea to check with the policy provider or your organisation's benefits administrator to determine your eligibility for group-term life insurance.
How can Nova Benefits help you with your Group Term Life Insurance?
Now that we’ve looked at all the types, benefits and eligibility criteria of Group Term Life Insurance, here’s how you can get one for your people.
We can help you find the right Group Term Life Insurance policy that suits your needs and budget.
- Access quotes negotiated from 5+ insurers for your team, ensuring you get the best possible price and coverage
- Unlock policy comparisons that are unbiased and give you a clear and transparent view of your options
- Get expert advice, personalised guidance and support to help you make an informed decision
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We can also help you identify the unique risks your employees face and recommend coverage accordingly.
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Read more: Why Companies Are Opting For Covid Specific Insurance Policies For Their Team?
FAQs
- Can I convert my GTLI policy to an individual life insurance policy if I leave my job?
Many GTLI policies offer a conversion option that allows you to convert your coverage to an individual life insurance policy when you leave your job. However, this typically must be done within a specific timeframe after leaving the company, so it's important to review your policy's terms and conditions to understand your options. - Can I purchase additional coverage beyond what my employer offers?
Some GTLI policies may offer the option to purchase additional coverage beyond what your employer provides. This is often referred to as a voluntary coverage option and may require you to pay additional premiums. - Can I name more than one beneficiary for my GTLI policy?
Yes, many GTLI policies allow you to name multiple beneficiaries. You can choose to split the death benefit among multiple beneficiaries or designate primary and contingent beneficiaries. - Will my GTLI policy cover me if I am travelling outside of the country?
This depends on the terms of your policy. Some GTLI policies may have limitations on coverage outside of the country, while others may provide worldwide coverage. It's important to review your policy's terms and conditions to understand what is and isn't covered. - Is the death benefit paid out in a lump sum or instalments?
This can vary depending on the policy. Some GTLI policies pay out the death benefit in a lump sum, while others offer the option to receive the benefit in instalments over time. - Will my GTLI policy be affected if I have a change in employment status, such as a demotion or layoff?
Your GTLI coverage may be affected if you have a change in employment status. If you are demoted or laid off, your employer may no longer pay the premiums for your coverage. However, many policies offer the option to convert your coverage to an individual policy or continue coverage through a portability option. - How much coverage can I get under a GTLI policy?
The amount of coverage you can get under a GTLI policy varies depending on your employer's plan. Employers typically offer coverage equal to a multiple of your salary, such as one or two times your annual salary. Some employers may also offer the option to purchase additional coverage through voluntary options. - Will my GTLI policy cover me if I die from a pandemic, such as COVID-19?
Yes, GTLI policies typically cover death from all causes, including pandemics like COVID-19. However, it's important to review your policy's terms and conditions to understand any exclusions or limitations that may apply. - Can I take out a loan against my GTLI policy?
No, GTLI policies do not typically offer the option to take out loans against the policy's cash value. If you need to access funds, you may want to consider other options such as a personal loan or line of credit. - How much does GTLI coverage typically cost?
The cost of GTLI coverage varies depending on a number of factors, including the size of your employer's group, the age and health of employees, and the level of coverage offered. On average, employers pay between ₹14,700 and ₹29,400 per employee per year for GTLI coverage. - How much coverage can I purchase through voluntary options?
The maximum amount of coverage you can purchase through voluntary options is determined by your employer's plan. Certain employers may offer a fixed amount of coverage, such as ₹36,750 or ₹73,500, while others may permit you to buy coverage up to a certain proportion of your salary, such as 5 or 10 per cent. - How long does GTLI coverage last?
GTLI coverage typically lasts for the duration of your employment with the company offering the coverage. Some policies may also allow you to continue coverage after you leave your employer through a conversion option, but this will generally be at a higher cost.
