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Term insurance plan: Group or individual?

dateKnowledge Centre Team dateFebruary 26, 2021 views123 Views
Term insurance plan: Group or individual?

Term life insurances are one of the most effective ways to ensure protection from the financial insecurities that may arise and in the future and also protects your family from various uncertainties. A term insurance plan makes sure that our family is taken care of even after our departure. Whole life insurance has a payout after its maturity and is treated as one of the best savings plans; it is not like that for term life insurance. Term life insurance offers no payout at the termination of the specified period.

The face value of the policy is paid only if the holder of the policy meets with an unfortunate event during the term of the insurance. This policy is more attractive to people who want the security of knowing that they are protected for life. More often than not, they are willing to pay higher premiums for less coverage to feel secure.

Now the question is how to choose the best policy. Group term insurance that is provided by your employer or an individual term life insurance policy that caters to your specific needs?

Let us discuss both the types of insurance policies to help you choose the best term plan for you and your family.

What is a group term life insurance?

When one contract is issued to cover multiple people, it is called a group term life insurance. The most common group or the group which benefits the most from this type of contract is a company. The contract covers the benefits of the employee and is issued to the employer. Employers usually provide the employees with the base amount for group coverage. The employer may also provide the employee with the ability to purchase supplemental coverage for the employee's family.

As compared to the individual term life insurance, group term life insurance is relatively inexpensive, which is why the participation is high. Unlike the individual term life insurance, the group is not considered to be one of the best savings plans, as the contributions made by the employer cannot be redeemed by the employee.

What is an individual term life insurance?

A type of insurance that guarantees stated death benefits upon the event of the death of the covered person during the specified term or period of the policy is then known as term insurance or pure life insurance. Once the term expires, the policyholder is provided with a few options-

  • Renew it for another term
  • Convert the policy to another
  • Allow the term life insurance to terminate

The individual term life insurance covers a single individual and, in some cases, covers the spouse as well. Usually, these policies have no other value other than providing benefits to the family. Individual term insurance is not the best saving policy. Unlike a whole life insurance policy, term life insurance doesn't have a savings component.

Group term insurance vs. individual term insurance

  • Applicability

    In the employer-sponsored group term plans, the continuation of the benefits and the coverage of the plan are dependent on the employer. It is so because the insurance is issued in the name of the employer, and they are responsible for paying the premium. During the stringency of availability of capital, the employer may fail to pay the premium and no longer be able to provide the coverage for the employees.

    In case the employee wants to change jobs, they themselves will have to find a new policy or get enrolled in the group insurance of the new company. However, all this hassle can be avoided if one opts for individual term life insurance. The individual term insurance is always available and provides continuous coverage and benefit as long as the premiums are being paid.

  • No claim bonus

    When individual term insurance expires, it can be renewed or enhanced (if the eligibility criteria are met). You can avail the benefits at a lower premium rate. A group insurance plan does not offer such benefits for a claim-free year. Term insurances are often not to be confused with saving plans since there is no payout at the end of the specified period.

  • Flexibility

    The coverage provided by the group term insurance is usually standardized and may not fit the lifestyle of the employee. Group term insurance often does not provide the option to the employee to avail the benefits for their spouse or children.

    In the case of an individual term insurance, they can modify the plan as per their requirements. Some of the term plans like iSelect Smart360 Term Plan allows you to add your spouse to the same policy.

  • Pricing

    In a group policy, the terms and conditions are decided by the employer. The plans offer similar benefits and cover most employees of the company, if not all. A group term insurance is usually inexpensive because the premiums are paid by the employer; the employees may have to contribute a small portion of their paychecks towards the insurance to become eligible for the benefits of the contract. Individual term insurance costs are significantly more than its counterpart.

    But along with the extra price comes extra benefits. Unlike the group policy, which offers similar benefits to all the employees, the individual policy can be modified and adjusted to suit the need of the person availing it. Individual term insurance also has added benefits, and in the long run, benefits can be availed at a discounted price as well. This will depend on the term and conditions of your insurance plan.

    It is prudent to take up term insurance as early as possible since the premium will increase if it is taken at a later age. In a group insurance policy, this will not be a cause of concern, but it will also not provide the additional benefits of the individual policy. It is also better to take up an insurance scheme best suited to the lifestyle of the individual. Some individuals participate in group insurance as well as take up individual term insurance. The person should go over and beyond to see which scheme is the most beneficial to them before finalizing on anything.

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