What is covered under group life insurance?

As mentioned above, group life insurance is further divided into many schemes. The coverage depends on the kind of policy that the employer entails.

1. Group Term Life Insurance

The nominee of the employee will be paid a lump sum amount, in case of untimely death. In addition to this, the employee gets regular life coverage benefits.

2. Group Gratuity Plan

In this, if the employee retires or resigns after five years of working in the company, the employer has to pay gratuity to the employee.

3. Investment-linked Insurance Plan

The investment-linked insurance plan offers investment benefits other than the life coverage. The employee gets market linked investment returns via active market participation through the defined investment funds.

5. Group Mortgage Redemption Assurance Scheme

This policy adds insurance security to the employees that have availed for a loan. It also provides life coverage benefits.

6. Group Leave Encashment Benefits

This is a bit similar to the Group Gratuity Plan. The employer has to pay a leave encashment to the employee in addition to the life coverage scheme.

Group life cover is a type of term insurance, also known as death in service benefit, which an employer may offer to their staff. It is set up by your employer to cover you while you are employed within their organisation.

How does group life cover work?

If you die, death in service benefit pays out a lump sum to your family or next of kin. The lump sum is usually based on a multiple of your salary, for example two, three, or four times your salary. This benefit is tax-free provided it is not more than your available lifetime tax-free allowance which was £1.8 million in 2012-13.

For your family to receive death in service benefit, you must be employed with your organisation at the time of your death. This type of life cover usually runs until your normal retirement age. If you take time out from your career or leave the company for any reason you will no longer be covered.

Group life cover is purchased by your employer

Your employer pays the premium and agrees the level of cover with the insurance company. This is different to other individual term insurance policies where you pay the premium and decide the level of your cover.

The employer can choose different benefit calculations to determine the amount of coverage for the employees under a group life insurance policy. In general, for group insurance contracts, the employer assigns employees to different classes and schedules of benefits. These classes determine the amount of coverage that will be provided to the employee.

Here are the various types of benefits schedules that are generally used:

• Earnings Schedule: In this method, the firm distributes the employees to different classes based on their salaries (excluding the bonus). Organizations most commonly use this method to determine the coverage for group life insurance policies. They determine the amount by a percentage or the multiple of annual salary which is, most of the time, equal to the one time of annual income. Hence, higher multiples can be provided to the executive class.

• Flat Benefit Schedule: In this method, no importance is given to the position and the salary of the employee. To sum up, the management considers all the staff equal and groups them under one class so that all of them receive the same benefits. 

• The Length of Service Schedule: Very few companies use this schedule to determine group insurance benefits. In this category, they calculate the benefits by grouping the employees based on the number of years the employee has been working with the company.

• Combination Schedule: The firm can use a mix of two schedules. They can use the earning schedule to determine the benefits of the most valuable employees of the company. Whereas the employees working on an hourly basis, they can employ the flat basis method.

Click here to know what is covered under the group life insurance policy ?

Case on Group Life Cover Decision

ABS Pvt. Ltd. is a manufacturing industry, where there are two types of employees. One is those who work in the factory on the hourly payroll. These workers receive the payroll based on the number of hours worked in a month. The other staff takes care of all the marketing, accounting, sales, research, and other operations of the company. The company paid the full-time employees fixed salaries and incentives.

The management of ABS Pvt. Ltd. is planning to buy a suitable group life insurance cover for all their employees irrespective of being full-time or not.

So, to determine how much coverage they should buy, they divided their employees into two groups:

1. the permanent employees (that includes those who are responsible for operations)
2. the temporary employees (those who are responsible for working in the factory).

They divided permanent employees into three classes, i.e. senior, middle-level, and entry-level based on position. They assigned multiplier one to the entry class, two to the middle level, and three to the senior class. Therefore, the management applied this multiplier to the average salary in each class to determine the coverage.

Whereas in the case of temporary employees, they used a flat rate basis. The company gave the same benefit given to the employees of the whole group irrespective of the number of hours worked.

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