May 28th 2020

Group Insurance Definition

Group Insurance is a type of insurance which covers a group of people who are related to each other by some defined criteria i.e., Members of Society or any professional association, employees of an entity, employees working under the same employer etc. It can be life insurance, health insurance or any other type of personal insurances
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Explanation

A Group Insurance is provided to those personnel which is created by pooling the people who are related to the same profession or same association or any other defined criteria. Such a scheme has been introduced by many insurance companies to provide the requirements of many specific groups like professionals in an organization, employer-employees, etc.

Objectives

#1 – Providing Investment Plans to Pay off Gratuity to the Employees

In the case of an organization, employees completing more than 5 years of service in the organization are eligible for the payment of Gratuity. In this kind of scenario, the organization has the option within the Group Insurance plan to have an investment or create a corpus that will be used further to pay off the gratuity amount to the eligible employees.

#2 – Covers Term Insurances

In terms of insurances, in case of the untimely death of the person, the sum assured is paid off to the family members of the deceased.

#3 – To Increase the Habit of Long Term Savings

It increases the habit of long term savings for the members covered in this insurance and these insurance or savings helps to cover the further future liability of the person like marriage or education fees for the kids.

#4 – Annuity Facility

It provides superannuation schemes for the employees for their retirement plans. In the scheme, the employees accumulate the premium amount throughout their service and get paid as pension after retirement.

Characteristics

Some of the characteristics are as follows –

For such a policy, there should be a group of individuals who are related to each other by some defined means.
In the case of this insurance, the effective cost comes less than if the individual insurance would have been taken. So in consideration of an organization, it is more effective as less paperwork, less controlling documents, less controlling personnel involvement and effectively less cost to the organization.
In the case of this insurance, there is no risked based classification or discrimination between the members of the group. There is no discrimination regarding gender or age etc. All of the persons are charged the same premium amount that belongs to the same group insurance policy. Thus the plans are uniform and provide the same benefits to all the members.

Types of Group Insurance

There are different types that are offered by the insurance companies to the related entity as per the requirement of the entity. These schemes could be as follows –

#1 – Health/ Medical Insurance

Health Insurance is provided to various entities like Small & Medium size Enterprises etc. where an employer can get a group health insurance policy covering all of his employees and the cost of the policy is quite low for the SMEs as well.

#2 – Term Life Cover

This is provided as same as the Group Medical Insurance, and the premium amount for the insurance is deducted from the salary of the employees monthly (in case of the employer-employee group).

#3 – Personal Accident Insurance

Personal accident insurance covers the accidental death of beneficiary as well as medical expenses along with partial or total disabilities. So the beneficiary does not have to take other individual insurance covers for injuries or health issues for which he does not need to be hospitalized. This cover includes the charge and fees of doctors in such scenarios.

There are other group insurances as well like:

Group Pension Plans
Worker compensation insurance
Travel Insurance etc.

How does Group Insurance Work?

The group insurance contract is entered by the Head or Group administrator. Where the group administrator entered into a single contract with the insurance company which will cover the insurance of all the members of the group and for such, all the members will be issued a certificate for the proof of insurance. These contracts are only valid for the individual until he remains in the group if he leaves the group the contract will also be discontinued. The payment of premium for the insurance will be paid by the administrator for which he will charge the respective amounts from the other members.

In case of any incidence or query related to the insurance need to be communicated, the respective beneficiary can contact directly to the insurance company without looping the Group administrator into the conversation.

Benefits

Mostly these policies provide lower costing to the group administrators as well as provides better insurance plans with wider coverage of conditions as compared to individual insurance plans.
The Group insurance offered by the management provides a better effective environment within the entity by providing the employees a morale boost as well as a healthy & good working environment.
The administrators taking these covers are also benefited from it as tax benefits are also provided in the respective tax laws.
The payment of these is also done from the salary of the employees, so employees have a hassle-free way to submit the payments without filling any other forms or going somewhere to pay the premium amount.
In the case of pension or superannuation schemes, the funds are managed by insurance companies and provide a greater return to the employees compared to the funds managed by the entity itself.

Limitations

The individual beneficiaries do not have any control over their portion of coverage of the policy.
The insurance contract will be discontinued if the beneficiary leaves the group i.e., in case of employee leave the organization, the cover will be discontinued for him.
In this type of insurance, all are treated uniformly. This results in the same risks considered for every person like for a healthy person and a seriously sick person, the cover will be considered the same with same terms and conditions

Conclusion

The Group insurance policy is a single policy taken for a group of people who are related to each other as the defined criteria in the terms & conditions of the cover. The group policy results in the reduced cost for the group head as well as the individual beneficiary with wider coverage of terms and conditions related to the cover and all the beneficiaries are judged uniformly without any discrimination.

Group Insurance