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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 Star 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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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?
  9. 9. Does the term insurance plan have a cash value if you decide to cancel the policy?
  10. 10. Under what circumstances can a term insurance plan be cancelled?
  11. 11. Can I pay the premiums online or make electronic payments?
  12. 12. What will happen to the term plan if the life assured starts smoking after purchasing the policy?
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