A group term life insurance is one of the cheapest financial products on offer. Its features and benefits are the subject of discussion, in this article.
If you are a salaried professional, you may be offered group term life insurance by your employer. It’s one of the many types of insurance products that are made available and provided as part of an employee welfare package, by an employer.
What is Term Life Insurance?
This type of insurance offers a coverage for a limited term or time span. This means that a policy holder’s beneficiaries will receive a death benefit amount, only if the death occurs within a specified time span, which could be any number of years. Most importantly, under a term life insurance, there is no payout to the insured, if no claim is made during the specified time span.
This is unlike whole life insurance, where a certain payout is made after the policy term expires. That’s why, the policies are cheaper, compared to whole life insurance. Its premium needs to be paid every year, for renewal. The premium value may increase with advancing age of the insured.
How is the Group Insurance Variety Different?
This type of insurance is offered by employers as part of an employee welfare package. It is a term life insurance policy that covers a group of people (usually employees) and pays out death benefit in the event of demise of any one of them, to his or her beneficiaries. It tends to be cheaper, compared to an individual insurance policy. In USA, an employer can claim tax deductions for investments in group insurance up to USD 50,000. However, any amount exceeding this is taxable.
All the features of a term life insurance apply to its group variety too. An employee may contribute a very small portion of its premium, while the major contribution is usually made by the employer. It needs to be renewed periodically through yearly paid premiums. The procedure for payment of premiums and renewal is generally handled by the human resource department of a company, on behalf of the employees. Calculation of premium is done by the insurance company, after an analysis of the degree of risk they will have to take.
Pros and Cons of Choosing One
One of the major pros of this insurance product is its affordability. The premium size for a group term insurance policy is a fraction of what one would have to pay for a whole life insurance policy. The fact that the risk taken by an insurance company is divided over a group, lets them provide a low premium.
The major con of opting for this insurance type is that it is hardly enough to cover expenses of the beneficiaries. The amount is generally quite paltry, compared to whole life or single premium life insurance policies. Second disadvantage is, of course, the limited time span for which the coverage is offered, after which it discontinues, with no payouts.
The amount of payouts that beneficiaries receive in the event of a death, is not at all adequate. Though the payout size may be quite limited, compared to a life insurance policy, it can act as a supplementary coverage at best. It is essential that an individual invests in a separate whole life insurance policy, which provides a substantial benefit to dependents, in the event of death.