One of the most common benefits given to many organisations’ employees is the coverage of a group term life insurance policy. What is group term life insurance? It is an insurance policy that covers many people against unfortunate circumstances leading to death. These people are covered under a single policy only, which is primarily managed by a master policyholder. One never knows when an unpredictable situation will occur and leave their family bereft of the main earning member. Therefore, having the security of a term insurance policy can be very beneficial.
Understanding group term life insurance
As opposed to having separate policies for different members of an organisation, a group insurance policy makes it possible for all of them to be covered under a single plan. The sum assured and the coverage for a group term life insurance plan are determined by the master policyholder, who is usually the employer. In the event of a member passing away under covered conditions, the employer is liable to pay a pre-decided amount to the employee’s family.
The employer deducts the premium amount from the employee’s salary on a regular basis. The premium for each employee is calculated based on several factors. A few factors depend on the employee, while others depend on the employer. Let’s take a look at these factors in detail.
Factors affecting group term life insurance premiums
- The base coverage and sum assured
Like with any other insurance policy, the risks covered by the policy will play a huge role in influencing the premium. A larger number of risks covered means a higher premium. Similarly, if the organisation is promising a hefty amount as financial compensation in the event of a member’s passing away, they will have to incur a heavy premium.
- The number of employees in the organisation
A group policy that covers 300 members is bound to have a higher premium than a group policy that covers 150 members. The higher the number of people covered, the more the accumulated risk and the chances of claims being raised. Furthermore, an organisation’s strength (in numbers) is always increasing or decreasing as new people are recruited while others leave.
For instance, the number of employees in the organisation at the time of buying the policy was 200. However, there has been rapid expansion and 40 new employees have joined in the last year while 10 left. The coverage for an additional 30 people will be considered when calculating the premium during the renewal.
- The age of the employees
It is a well-known fact that the age of the policyholder plays an important role in determining the premium of the life insurance policy. In a group policy, too, the average age of the employees has a direct effect on the premium. If the employees are mostly young, for instance, in the age bracket of 22-40 years, the premium will be comparatively low. An organisation with employees in their late 40s or 50s is more likely to incur a high premium due to the high chances of a claim being raised.
- The option to add additional coverage to the plan
As mentioned earlier, it is the master policyholder who decides the coverage of the group policy. They have the primary authorisation to add or remove coverage from the master policy. However, there is an option within most group term life insurance policies that allows an employee to add more elements to their specific coverage. For instance, if the policy allows so at an extra premium, the employee can opt for a critical illness disability rider. The cost will be incurred by that particular employee only.
However, if there are claims on additional coverage elements being raised repeatedly, the premium of the master plan will be affected.
- The salary/position of the employee
Some policies allow for the same coverage and compensation for all employees of the organisation. Others, however, have a graded process wherein the coverage depends on the position of the employee within the company. An employee who is in a senior position with a higher salary is likely to pay more premium than an employee in a less advanced position.
It is important to be well aware of the policy wordings if you are covered under any group term insurance policy. Do reach out to the human resources department of your organisation to get a better understanding of what your group term insurance policy is like.