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Group life insurance, which in
most situations is offered by your employer, provides coverage at a reasonable
rate. While group life insurance can be a great deal, it might not provide
enough protection. If your group life policy is the only life insurance you own,
you could be open to financial disaster.
The group
advantage
:
You can get group life
either as an employee benefit (meaning you don't have to pay for it) or on a
voluntary basis (meaning you open your wallet).
If you receive the policy at
no cost, the most common type of coverage is usually a Term Life policy paying
around two year's salary to your nominees at your death. Some employers with
limited budgets might offer smaller policies with face amounts of 12 – 18
month’s salary depending on your position and seniority at the company. At the
other end of the spectrum, larger companies particularly those in the IT sector
and MNCs might offer very generous death benefits that total two to four times
an employee’s annual salary.
If your company offers group
life on a voluntary basis, the coverage is generally more extensive. The size of
your death benefit can vary, but can be several times your annual salary.
Most group life plans are
term policies that provide life insurance protection for as long as you work for
the company. Unlike individual life insurance policies that you could buy on
your own, premium rates for Group policies are rarely locked in. Premiums
usually depend on the claims experience and changing age profile of the group.
Group life on the
cheap :
Group life insurance tends
to be inexpensive because the insurance company is calculating the overall risk
of the group. The chance of everyone at a company dying simultaneously is so
small that the cost of insuring a group is cheaper on a per person basis than
insuring an individual.
The insurer also assumes
that not all people at the company are going to work there until retirement, so
the length of the insurance term is relatively short.
Poor health ? No
problem
:
If your employer gives you
group life insurance free of charge, you often don’t need to undergo any medical
examination. Most of these are "guaranteed issue," meaning you will qualify for
insurance regardless of your medical condition.
However, depending on the
size of the group and the benefit amounts, a section of the employees (generally
the top layer with benefits above the Free Cover Limit) might be required to
undergo Medical Tests.
When setting a group life
rate, an insurer figures in the ratio of females to males (females generally
live longer, according to mortality tables), as well as the nature of the work
at the company. An IT company, for example, would likely have a cheaper group
life rate than a manufacturing company.
Think
"supplement"
If your employer offers
group life, it can be a nice supplement to your existing life insurance if you
have it. It's important not to count on group life as your main source of life
insurance. Most group life policies, whether you pay for them or not, don't
offer enough coverage for your beneficiaries. One or two years of salary, the
level of coverage offered by many group insurance plans, would fail to provide
complete financial protection when the key breadwinner in a family
dies.
The downside to group life
is that it's not always portable. If you're counting on group life as part of
your risk management plan and you change jobs or your employer decides to not
offer the insurance any more, you could be hit. Says Laxman Ganapati, Consultant
– Life insurance at Dr. Insurance, “Perhaps the biggest drawback to group life
is when you leave your job, you’ll probably lose the coverage. Worse, when you
leave your job, you might have trouble buying life insurance elsewhere if you've
developed a severe health problem.”
Another downside to group
life is it does not leave you with a lot of coverage options. For example, if
you want a Critical illness rider, you cannot ask for it for yourself alone. The
coverage has to be uniform for the entire group.
"It always comes down to
what your needs are," says Indira, Lead Consultant at Dr. Insurance.
"Group Policies are pretty much like the Vanilla ice-cream at a party…you cant
be asking for a chocolate or your favourite strawberry flavour.….but enjoy it
because it is free.” Indira adds, “but yes, when you buy your own, get it
customized.”
In summery, Group policy can
be a very cost effective way to add to your life insurance, if you already own a
policy. |
