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Why must companies buy group term insurance for their employees?

dateKnowledge Centre Team dateFebruary 03, 2021 views135 Views
Why must companies buy group term insurance for their employees?

Insurance privileges individuals, organizations, and society in better ways than an average person comprehends. The apparent and considerably important advantage of insurance is the payment of losses. A life insurance policy is a contract used to compensate for an individual's and organization's losses. It meets statutory and contractual requirements as well as provides testimony of financial resources. Another substantial benefit of insurance is promoting risk control activities. Insurance reduces the social burden. It also helps to reduce the burden of uncompensated accidents and the uncertainty of society.

Insurance is broadly divided into these categories.

  • Life Insurance: This insurance helps one's descendants to be financially secure after one's death. It is particularly important if one is the only breadwinner of the family.
  • Health insurance: This insurance covers all medical expenses and treatments. It covers hospitalization, medication, and treatment costs.
  • Educational Insurance: This provides a lump sum amount of money for one's child's higher education.
  • Home Insurance: It helps to construct one's dream house and covers the loss or damage to one's home due to natural calamities or accidents like fire breakouts.
  • Car Insurance: This insurance is awfully important for a car owner. It compensates for accidental damages and damages due to natural calamities like floods, earthquakes, etc.

Insurance is a significant part of feeling protected and having a harmony of mind, and when employers provide that for employees, it most likely does not go neglected. Offering important benefits and perks will likely help form a better bond between employers and employees. That bond is one way everyone in a company manages to get more done and feel better about themselves and their working environment.

In an enterprise or a place of business, the main important asset is the human resource which relies on the flourishing allocation, usage, and processing of all other resources. Therefore, it is of utmost importance to work for the betterment of employees. A pleased and content employee renders her/his services within the most effective manner possible. Moreover, an atmosphere of satisfaction in the workplace is attained. To achieve the goal of content employees and an appeased work environment, an employer needs to ensure that the employees' financial interests remain secure at all times. Having a selected and relevant term insurance plan in situ is one such factor that's essential and basic.

Such insurance is generally recommended in an organization as a group term insurance plan that provides complete insurance coverage to each employee. A group term insurance plan ensures the employees' financial resources and contracts a secure future for their dependent families, even in their absence. Many organizations offer group term insurance plans for their employees to safeguard their financial strengths. The main motive of group term insurance is to secure cover at lower premiums to those sections that may not afford personal policies.

Most of India's insurance companies have come out with group term insurance policies that can be customized to meet certain requirements of the varied group they are targeted at. The advantage of these group term insurance policies is accessible to people irrespective of their age, gender, socio-economic background, and the profession as long as they pertain to the group that is applying for the group term insurance.

Group plans help in making employees and employers feel better about their working relationship. Of course, having insurance will not resolve all company or employee problems. Still, it can certainly go a long way toward ensuring that employees and employers feel better about everything they have at a particular company. Group term insurance provides coverage to the whole group of employees, right from the moment they join the priority. This makes the whole operation secure and obvious and helps in tax savings as the premiums are deducted on income, thus reducing the taxable salary component.

Group term insurance policy doesn't need any medical check-ups or any profiling on the idea of health. Group insurance policy is revived yearly. The employer can save on taxes as the premium payable towards the policy counts. The rate of premiums may be lower than that for an individual cover, so this policy is advantageous.

Why choose a group term insurance?

  • Small business insurance can save money
  • Lower cost due to larger risk pool
  • Tax incentives for offering insurance to employees
  • Positive work environment and happy employees
  • Better insurance plans offered
  • A lower price for insurance plans
  • More coverage for preexisting conditions
  • Objectives of group term insurance Policies

Group term insurance has many objects, but some are summed up here :

  • Gratuity: An employee completing more than five years of employment in an organization becomes eligible for the gratuity. The group term insurance plans provide investment options to the organization to create an oeuvre that can be used to pay gratuity to the eligible employees.
  • Annuity: Superannuation policies of group term insurance provide for retirement plans that can be benefited by the employees by accumulating premiums over their period of service which is provided to them at the existing NAV at the time of retirement as a pension.
  • Term Insurance: Such group term insurance plans pay the sum ensured to the next of kin of any of the members in case of his untimely death during the insurance term.
  • Savings Tools: The group term insurance policy also has additional savings that can be used to create wealth over the long term while retaining insurance cover.
  • Protection of Credit: Such group term insurance plans have the provisions office-of with banks to provide for any outstanding dues or loans of the member after his death or disability.

Benefits of the group term insurance schemes

Group term insurance is in trend these days as it provides phenomenal benefits to the insurers. Here is a list of the benefits provided:

  • Insurance Cover: Most of the group term insurance plans prevalent in India provide automatic insurance cover for the life of all members of the group or organization as long as they remain a part of it. This works great for those segments who cannot afford individual life cover through distinct policies. The cover provided in such cases is barely a basic amount, and the individual member must take other policies after retirement or when retiring from the group.
  • Low Premium Cost: Compared to any individual plans, the premium for the group term insurance schemes is much lower. However, the premium leans on various factors such as professional hazards, average age group, etc.
  • Ease of Payment: Since the premiums are deducted from the employees' wage, there is no further hassle of payment or missing the payment due date.

The employer's advantage: The employer requires at least 50 members to initiate such a group term insurance scheme in their organization, but some plans like Group Advantage Term Plan offered by Canara HSBC Oriental Bank Of Commerce Life Insurance allows coverage for companies with just ten employees. All payments made by the employer towards the contribution for group term insurance of employees is contemplated as a business expense and not calculated as profits for taxation. This amount is limited to a maximum of annual contribution up to 8.33% of each employee's salary bills. Such schemes also have the additional benefits of raising employee morale substantially.

When an employer offers this insurance to employees, they may get:

  • Employees who appreciate their insurance
  • Employees who care about their employer and their job
  • Employees who see that they can build a career at that company
  • Employees who feel valued and appreciated
  • Employees that want to make the company better for everyone.

The advantage to Employee: This is a win-win situation for both sides as such plans by their very nature enhance faith and devotion and thus work as retention plans since not if the employee is looked after through the plans but also the welfare of his family catered for through group term insurance. Even members of a non-professional group when taking such schemes can avail of tax privileges as equally applicable to all members. The minimum age for entry allowed by Canara HSBC Oriental Bank Of Commerce Life Insurance is generally 18 years, while the maximum age may vary. Some plans allow entry at the maximum age of 60, while some permit entry till 80 years.

  • Professional Asset management: In group term insurance schemes that cater to gratuity and annuity the assets can be organized by the more competent and professional experts of the insurance company thus providing greater returns for the covered employees.
  • Rider Options: With a minimal additional payment, the employees can avail of the benefits of various kinds of optional riders such as critical illness or loss of employment.

Most of the group term insurance schemes available in the market today are covered under the Employee Provident Fund Organization (EPFO) which mandates the employers to provide insurance to the employees under the Employee's Provident Fund and Miscellaneous Provision Act, 1952. Thus considering the option of taking a group term insurance scheme will accord a world of benefits to both the employers and the employees.

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Frequently Asked Questions (FAQs) for Term Insurance

This being a term plan doesn't offer any payout after maturity or expiration date.

Each insurance company has its own term insurance premium calculator. If you want to check out the premium quote, go for the iSelect Star term plan calculator. It gives a premium amount based on your age, gender, habits, education, and annual income.

You can purchase an iSelect Star term plan anytime between 18 to 70 years of age.

It depends on your needs. For example, if you want to cover a child's education or wedding expenses, you have to include them in your coverage. Your premium will be calculated accordingly.

If your key purpose is to give your Family financial protection, go for the term insurance plan. And if you want some savings, in the end, go for a traditional life insurance plan.

Go for at least 12 times cover than your annual income. Or you can go as far as 20 times coverage as per your needs.

The right time is when you don't have anything to keep your Family safe from financial storms, and they rely on you for financial needs.

If you are unable to make the payment or suffering from a terminal illness, a term plan pays a part of the sum insured to treat your disease.

Term insurance riders are attachment or endorsements made, while taking the term insurance policy, as a supplementary coverage to policyholders. Apart from the core death benefit, term insurance riders offer below-given additional benefits:

  • Accidental Death Rider When a person suffers from a terminal illness, his/her family ends up spending a significant amount in treatment and medical expenses. Accelerated death rider pays a part of the sum insured in advance to cover such costs and save the family from running out of cash.
  • Accidental Disability Rider If the policyholder can't pay the premium because of an accident or permanent disability, a sudden disability this pays the premium on behalf of the policyholder till completion of policy term or for a defined duration.
  • Critical Illness Rider If the insured person gets a heart attack, cancer, or any other critical illness, this rider pays a lump sum on valid diagnosis.
  • Premium Waiver Rider If the policyholder is unable to make payments due to income loss or disability, a premium waiver rider waives off all future premium payments. And the term policy remains active until the expiration date.
  • Income Rider: The rider ensures that your family receives regular income + sum insured in case of unfortunate demise of life insured.

Anyone can go for life insurance as it offers some savings after the maturity date, but it doesn't cover the protection of your family . The best term insurance plan is solely designed for taking care of loved ones if something happens to you. Term plans act as a shield between your family and sudden financial fall. They make sure that your family lives a healthy life even after you. With a little amount paid per year, you can be worry-free from the family's financial conditions.

Questions that you need to ask while buying Term Insurance?

  1. 1. Amount of premium you have to pay based on your age, habits, education, and monthly income
  2. 2. The total number of benefits covered in the term plan. Do they include benefits that you care about the most?
  3. 3. How to save money on tax if you pay for the term plan?
  4. 4. Do they offer regular income options?
  5. 5. Can you change the coverage and premium in the future?
  6. 6. Does the claim consider valid if death occurs outside India?
  7. 7. Which kind of death is not covered by insurance?
  8. 8. Can NRIs take term insurance? If yes, what are the conditions?
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