Embedded Value: Know why a group insurance policy is ideal

By: |
July 27, 2021 2:00 AM

In a group insurance scheme, all the members of a pre-existing group are provided uniform or graded cover through a single policy issued by the insurers. Employees of a particular company or the members of a cooperative society or the customers of a particular bank are considered as a group for providing insurance cover.

In respect of housing, car or personal loan, such a scheme proves to be a source of tremendous relief to the surviving members of the family.

The Covid-19 pandemic has been ravaging individuals, families, society and various social and commercial organisations. Due to the absence of a strong and viable social security system, the financial requirements of the surviving family members is unfortunately left to chance. It is in such a situation, that the existence of a group insurance scheme can provide some assurance.

In a group insurance scheme, all the members of a pre-existing group are provided uniform or graded cover through a single policy issued by the insurers. Employees of a particular company or the members of a cooperative society or the customers of a particular bank are considered as a group for providing insurance cover.

Group premium
Generally, term insurance schemes are offered to the eligible groups. The group premium rate being much lower than what an individual would pay for similar risk cover the group members are provided a much higher sum assured for the same amount. Insurers prefer large to very large groups for this purpose but for simple term insurance protection, a group of at least 25 persons is considered viable by the insurers. The policy term is one year, renewable every year by timely payment of premium by the master policyholder, the employer in case of a firm.

All the new employees or members get automatically covered by the group policy and those who retire or leave the organisation cease to enjoy the cover from the effective date. The sum assured can be different for different grades of employees and the premium has to be paid accordingly. Under group schemes, riders for wider protection such as double accident and or permanent disability benefits are also provided.

Uninterrupted protection
These days critical illness riders are also demanded by the employee-employer groups. The non-life insurers provide group health insurance schemes under which the premium per individual is far less than what one would pay individually. Based on mortality experience, insurers either reduce the premium for a few years or they subsequently provide higher risk cover without raising the premium.

The advantage of this scheme is uninterrupted insurance protection for a long tenure without the individuals going through the hassles of submitting plethora of forms and even medical reports to the insurers and maintaining records of premium payment, etc. Only one simple form may be required to be submitted for recording the name of the nominee.

The individual’s contribution to the scheme is through some system already in place. For example, the employer deducts premium amount from salary or makes a contribution from its revenue account. For groups of savings bank account-holders the premium is deducted from the account every year and remitted to the insurer.

The borrowers at a bank can also take mortgage redemption policy by joining the group schemes available through partner insurers of the banks. Joining such a scheme by paying a single premium at the time of borrowing or by opting for paying premium as an additional amount along with the EMI ensures that in case of the borrower’s premature death, the lender won’t demand the balance amount from his heirs. The insurance company would pay off the outstanding amount as on the date of death of the borrower. In respect of housing, car or personal loan, such a scheme proves to be a source of tremendous relief to the surviving members of the family.

The writer is former MD & CEO, Star Union Dai-ichi Life

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, Check out latest IPO News, Best Performing IPOs, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1Krisumi Corporation partners with Savills India to market Krisumi Waterfall Residences in international markets
2Home Loan: Should you repay it or invest if you have lump sum money?
3This Credit Card offers free health check-up, wellness treatment and big discounts at gyms, spas!