Life insurance plans are contracts between the life assured and the insurer, where the latter promises to pay a specific sum to the insured individual's family upon his/her death. The sum assured under life insurance plans is paid in exchange for a specific amount of premium that the insured pays at regular intervals.
Life Insurance as a workplace benefit
Life insurance has emerged as one of the popular workplace benefit and is frequently offered by employers. In exchange for monthly/quarterly/annual premium payments, a life insurance policy provides a lump sum of money to the designated beneficiary of an employee who dies. Life insurance policies are easy to administer and provides a valuable benefit for employees with families and dependents and also extend tax exemptions on the premium
The quantum of sum assured under such life insurance plans can be decided on the basis of CTC, qualification, experience and the previous record of the employee.
An employer can offer individual term insurance to a specific set of employees and can act as a prudent financial tool for companies looking to reward their employees. The proceeds from the policy go to the employee, but the premium is paid by the employer, with the payouts being exempt from tax.
Employer-given policies are usually offered under a group term life insurance that provides financial security to employees. Your employer may also offer a group variable insurance plan, administered like a cash accumulation scheme that provides superannuation of pension benefits, along with life cover and allied death benefits.
Let’s have a deeper look at the group term life insurance schemes offered at work.
How does group term life insurance work?
Group term life insurance policy, as the name suggests, refers to the life cover that is provided to a group of people. These schemes act as a monetary cushion for the beneficiary of the employee covered under the group term life insurance in case of death of the insured.
As an employee, you get to secure financial independence for your family. How does a group term life insurance policy work? The premium on the group term life insurance can be paid entirely by the employer, even though employees can also contribute. Payment of premium at the beginning of the year ensures that the members, i.e the employees are covered for a tenure of one year from the date of commencement of the policy. These group term life insurance policies are then annually renewable.
Benefits of group term life insurance
Since it is a group policy, the employees do not have to undergo the medical tests that are administered under other life insurance plans. In fact, group term life insurance plans can be customized to meet the niche needs of the employees that it covers.
Add-on covers are provided as riders in these policies to insure for critical illnesses, accidental deaths, disabilities, etc. Normally, the administrator of the scheme, i.e. the employer would be the one making decisions about the extended coverage. The employer would also keep the master insurance contract with them, while the employees covered under the plan are given a certificate of insurance as proof.
To round up the benefits:
- Extends protection for family or beneficiary or dependents of the employee covered.
- Generally cheaper than an individual life cover.
- Acts as an employee retention and motivation tool
- While the employer gets tax benefits subject to the prevailing tax laws, it is not treated as a perquisite in the hands of the employee.
- Offers the option to convert to individual coverage when an employee leaves the organization.
The group term life insurance policies only come with a death benefit, however. These are pure insurance products. Thus, in the absence of a maturity or surrender benefit, these cannot be considered a substitute for your financial planning for providing for the future.