Group insurance is a great way for businesses and organisations to provide life cover to their employees or members. It ensures financial support for families in case of an unfortunate event, offering peace of mind to everyone involved. Since it’s affordable and easy to manage, many employers choose it.
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Wednesday 19 March 2025
But what is group term life insurance, and why should you understand it? Learning about its meaning, features, and benefits helps employers and employees make informed choices. Whether you’re selecting a plan or want to know how it works, this guide explains everything.
What is Group Term Life Insurance?
A group term life insurance plan is a type of life insurance that provides coverage to a group of people under a single master policy. Typically offered by employers, organisations, or professional groups, this insurance ensures financial stability for employees or members in case of an unfortunate demise.
Unlike individual life insurance policies, which require separate underwriting for each applicant, a group term life insurance plan covers multiple people simultaneously, making it a cost-effective and accessible option.
Key Features of a Group Term Life Insurance Plan
- Single Master Policy: Instead of individuals purchasing separate policies, a group is covered under one umbrella policy managed by the employer or organisation.
- Affordable Premiums: Since risk is spread across a large group, the premiums are usually lower compared to individual term life insurance policies.
- Flexible Sum Assured: The sum assured for each member can be a fixed amount or linked to their salary/income.
- Multiple Payment Options: Depending on the plan, the premium can be paid annually, half-yearly, quarterly, or monthly.
- Coverage During Employment: Most group-term life insurance policies remain valid only while the member is actively employed. Some insurers may offer a conversion option, which is not a standard feature.
- Medical Examination May Be Required for High Coverage: Many group term life insurance plans do not require a medical check-up for lower coverage amounts. However, high sum assured limits may require medical underwriting.
- Death Benefit Payout: In case of a member’s death, the nominee receives a lump sum payout, ensuring financial stability for their family.
Why Should Employers Offer a Group Term Life Insurance Plan?
1. Employee Retention and Loyalty
Providing term life insurance policies as part of employee benefits fosters loyalty and enhances job satisfaction. Employees value organisations that care for their well-being beyond the workplace.
2. Financial Security for Employees and Their Families
A group term life insurance plan ensures that employees’ families are not left struggling in case of an untimely death. This security helps reduce stress and enhances workplace productivity.
3. Tax Benefits
Employers can avail tax benefits on premiums paid for a group term life insurance plan under Section 37(1) of the Income Tax Act, 1961, as a business expense deduction. However, employees do not receive tax deductions unless they contribute voluntarily to the premium.
Scenario 1: Employer-Funded Plan (No Employee Contribution)
Company ABC Pvt. Ltd. provides a group term life insurance policy covering all employees. The annual premium paid by the company for each employee is Rs. 10,000. The company claims this amount as a business expense under Section 37(1), reducing its taxable income.
If the company’s taxable profit is Rs. 1 crore, the total premium paid for 200 employees amounts to Rs. 20 lakh. Since this is a deductible business expense, the company’s taxable income reduces, lowering the overall tax burden.
This results in financial savings for the company while ensuring that employees receive free life insurance coverage.
Scenario 2: Employee Voluntary Contribution for Additional Cover
Rahul, an employee, receives basic coverage from his employer but wants additional coverage. He voluntarily contributes Rs. 25,000 annually to enhance his coverage. This contribution qualifies for a tax deduction under Section 80C, which has a limit of Rs. 1.5 lakh.
If Rahul’s taxable income is Rs. 10 lakh, his tax liability before deductions would be Rs. 1.17 lakh. After deducting Rs. 25,000 under Section 80C, his new tax liability is Rs. 1.10 lakh, leading to savings of Rs. 7,000 in taxes.
By opting for voluntary contributions, Rahul ensures higher life insurance coverage while reducing his taxable income.
Scenario 3: Employer-Funded Plan for All Employees with Tax Savings
XYZ Ltd. has 500 employees and pays Rs. 5,000 per employee annually for group term life insurance. The total premium paid by the employer is Rs. 25 lakh (500 × Rs. 5,000).
This amount is fully deductible under Section 37(1). Assuming XYZ Ltd.’s corporate tax rate is 25%, the tax savings on the deduction amount to Rs. 6.25 lakh (Rs. 25 lakh × 25%).
This helps XYZ Ltd. reduce its overall taxable income while ensuring financial security for all employees without additional costs for them.
4. Easy Administration
Managing multiple individual term life insurance policies can be complicated, but a group term life insurance plan simplifies administration with a single master policy.
Benefits of Group Term Life Insurance
1. Cost-Effective Coverage
A group term life insurance plan offers lower premiums compared to individual plans, making it a budget-friendly option for organisations and affinity groups. However, premiums may vary based on the risk profile of the group, employee age distribution, and coverage amount.
2. Fast and Easy Process
With minimal documentation and no mandatory medical tests, enrolling in a term life insurance policy under a group plan is quick and easy.
3. Customisable Plans
Organisations can tailor their group term life insurance plans based on employee needs, choosing different coverage options and sum assured amounts.
4. Additional Coverage Options
Some plans allow members to purchase voluntary coverage, enhancing their life insurance protection beyond the base coverage.
5. Lender-Borrower Protection
For members who have loans, group term life insurance can be structured to settle outstanding debts first, ensuring financial liabilities do not burden families after the member’s demise.
6. Peace of Mind
Knowing that their family will be financially secure gives employees the confidence to focus on their professional and personal growth.
Choosing the right insurance provider is important. Brands like Aviva India offer group term life insurance plans to provide comprehensive protection for organisations and their members.
A Small Step for You, A Giant Leap for Security
Investing in a group term life insurance plan is not just a financial decision—it’s a moral responsibility. Whether you’re a business owner, HR professional, or part of an affinity group, offering life insurance coverage ensures that your employees or members are cared for in difficult times.
Life is unpredictable, but financial security doesn’t have to be. A term life insurance policy under a group scheme is the simplest way to provide protection, ensuring that those contributing to your success are safeguarded against uncertainties.
*Standard T&C Apply
**Tax benefits are subject to change in prevalent tax laws.
***Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making any related decisions.
****Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms, and conditions, please read the sales brochure/policy wording carefully before concluding a sale.
