A SHORT GUIDE TO GROUP LIFE INSURANCE FOR EMPLOYEES
Many employers offer a small amount of free life insurance as part of their benefits package, with the option for employees to purchase additional cover at their own expense. But what is group life insurance, and how does it differ from other life insurance policies? What cover does it provide, and do you need more?
Whether you are starting a new job or completing your annual enrollment paperwork, we at the Guides Home team are here to help. We have taken an in-depth look at group life insurance and compiled all the information we have gathered into this helpful guide. Below you’ll find out how group life insurance works, how you can increase your cover and what happens if you leave your job.
What is group life insurance for employees?
Your new employer tells you that one of the fringe benefits they offer is life insurance. What he may not mention is that he offers what’s called “group life insurance,” which is slightly different from other customizable policies.
Group life insurance is like an insurance policy in a pool. Your employer (or union, guild, etc.) negotiates with an insurance company for a policy that covers all employees (including you). In the event of your death, group life insurance pays out a sum to your beneficiaries – usually the equivalent of one or two years’ salary.
In some cases, the employer actually pays out of pocket for this benefit. In other cases, an employer may deduct the premium cost from your regular salary.
The pros and cons of group life insurance for employees
Is your group life insurance sufficient? Is it a welcome added benefit or an unnecessary burden? To help you answer these questions, let’s take a quick look at the pros and cons of group life insurance for employees.
Advantages:
For people who have not yet considered life insurance, group life insurance for employees falls squarely in the “better than nothing” category.
If your employer covers group life insurance in full (i.e. if they do not deduct the insurance premiums from your monthly salary), it’s a fantastic career perk.
Group life insurance for employees is a positive first step towards secure cover. Since you are already insured (albeit minimally), you only need to take out a small, affordable policy to complete your coverage.
Disadvantages:
Group life insurance policies tend to be very tight – usually around twice your annual salary or less. The minimal coverage will undoubtedly help your beneficiaries get through the difficult time after death, but it may not be enough to provide them with financial security in your absence.
Group life insurance for employees is inflexible and does not suit everyone. It doesn’t necessarily reflect your unique situation, lifestyle and needs.
If your employer deducts premiums from your monthly paycheck, you may wonder if that money could be better invested in an individual, solid life insurance policy.
If you are terminated or switch to another company that does not offer life insurance, you will lose your coverage.
Features of group life insurance policies
Group life insurance essentially provides affordable and efficient life insurance cover for the employees working in a company. Some of the key features of these group life insurance policies are
1. Insurance cover for a large group of people
a group life insurance policy provides life insurance cover for multiple people under an individual or master policy. The insurance company does not have to go through the hassle of filling out applications or medical tests for each applicant. Instead, the employer becomes the applicant and also the main contract holder, selects the insurance benefits and completes the formalities for taking out the group life insurance policy
2. Affordable life insurance cover
Affordability is one of the most important features of group life insurance. Both the employers and the employees usually share the cost of availing the life insurance benefit, which makes it very affordable for everyone involved. As part of the premium contribution, the employer may decide to withhold a small portion of their salary.
How group life insurance works
The functioning of a group life insurance policy is described in the following flowchart –
A group insurance contract is issued to a group administrator after an initial payout has been made
The premium payment made initially covers all life insured members of the group life insurance contract for one year from the inception date of the group insurance contract
The premium paid initially covers all members insured under the group life policy for one year from the inception date of the group policy
Group members have the option to choose the sum assured – either as a lump sum payout or in conjunction with a salary or loan account
Group life insurance policies are renewable annually
The premium payable under group life insurance policies is based on the differences in age distribution and the size of the age group concerned
The bottom line
Group life insurance is an increasingly common benefit offered by employers. It can also be offered to members of a professional organization, group or association. In any case, group life insurance provides affordable coverage that is guaranteed up to a certain amount and is tax-free.
The basic cover provided by group life insurance may be limited. If your employer or organization does not provide adequate coverage, you should purchase additional life insurance to ensure that your dependents receive the amount they need.
