As the name suggests, group insurance policies are designed to provide insurance cover to groups of people which include employers, employees, professionals, cooperative societies and certain weaker sections of society. The main objective is to provide cover at lower premiums to those segments that may not be able to afford individual policies.
Most insurance firms provide customised policies to meet the specific requirements of the varied group they are targeted at. The advantage of these policies is that they are available to people irrespective of their age, gender, socio-economic background as well as profession, as long as they belong to the group that is avialing of the policy.
Objectives of Group Insurance Policies
There are different types of objectives for which these plans are designed but most of them cover certain basic functions:
* Gratuity: Any employee completing more than five years of service in an orga-nisation becomes eligible for gratuity. Group insurance plans provide investment options to the organisation to create a corpus that can be used to pay gratuity.
* Annuity: Superannuat-ion schemes of group ins-urance provide for retirement plans that can be ava-iled by the employees. This is done by accumulating premiums over their period of service, which is provided to them at NAV at the time of retirement as pension.
* Term insurance: Such plans pay the sum assured to the next of kin in case of death during the insurance term.
* Savings tool: These policies have additional saving elements that can be used to create wealth over the long term while retaining insurance cover.
* Protection of credit: These plans provide for tie-up with banks to provide for outstanding dues or loans of the member after death or disability.
Benefits of the Group Insurance Schemes
There are a host of benefits associated with group insurance.
* Insurance cover: Most plans provide automatic life insurance cover for all members of the group or organisation, as long as they remain part of it. The cover provided, however, is a basic amount and the individual member must opt for other policies after retirement or when leaving the group.
* Low premium cost: As compared to individual plans, the premium for group insurance schemes is much lower. It depends on factors such as professional hazards, average age of the group etc.
Currently, the One-Year Renewable Group Term Assurance Plan of the LIC offers the lowest premium on every lakh of cover provided. This scheme requires annual renewal.
* Advantage to the employer: The employer requires a minimum of 25 employees to initiate a group insurance scheme. All payments made by the employer toward group insurance is considered business expense and not calculated as profit for the purpose of taxation.
This amount is limited to a maximum annual contribution of 8.33 per cent of the salary bills of each individual employee.
* Advantage to the employee: This is a win-win situation for both employee and employer as such plans enhance trust and loyalty. They work as retention plans since not only is the employee look-ed after through the plan, but the welfare of his family is also catered to.
Even members of a non-professional group, when opting for such schemes, can avail tax benefits equ-ally applicable to all members. The Sarva Shakti Suraksha of Bajaj Allianz is one such plan.
* Professional asset management: In group insurance schemes that cater to gratuity and annuity, the assets can be managed by the more experienced and professional experts of the insurance company, thus providing greater returns for those covered.
* Rider options: With minimal additional payment, employees can avail optional riders, such as double accident benefit offered by the LIC, and others such as critical illness or loss of employment offe-red by most private insurance companies.
Most group insurance schemes available in the market today are covered by the Employee Provident Fund Organisation which mandates that employers provide insurance to employees under the Employees Provident Fund and Misce-llaneous Provision Act, 1952.
Considering the option of taking a group insurance scheme will accord a world of benefits to both the employers as well as the employees.
Adhil Shetty is CEO of BankBazaar.com