Updated July 17, 2023
Definition of Group Insurance
Group Insurance refers to insurance coverage that covers an entire set of people which can be of a particular group, company, or any other associated entity which makes them a group with a common identity.
In short Group Insurance is a collective insurance coverage with a standardized product for all its group members and comprises a single policy being issued instead of a policy to each member of the group. Group Insurance is a common feature in Employer-Employee groups or the case professional groups. However, it is not confined to these groups and can be for any group with a common link between them.
Explanation
It involves multiple groups of members governed by a single policy with the premium amount either paid by the group head which in the case of employer-employee is the employer itself or may involve premium contributed by its group members. It remains valid for group members as long as they are part of the group and the benefits cease to exist if one leaves the group.
Characteristics of Group Insurance
Some of the common characteristics are enumerated below:
- Group Insurance involves the issuance of a single master policy covering all the group members with a separate Identity card issued to each group member.
- Usually economical compared to individual policies of the same terms and conditions.
- It is standardized and non-customized and follows a one-fit approach.
- It is usually covered under Heath and Life Insurance.
How Does Group Insurance Work?
The working is quite simple and straight forward and unlike normal insurance where every individual is provided a customized policy, it involves a direct master agreement between the Insurance Company and the Employer Organization related to terms of the policy and coverage and premium amount.
In case the premium is fully payable by the Employer the whole premium amount is directly paid by the Employer to the Insurance Company and each group member is provided with a unique Health Identity Card through which the benefits can be availed. In case the premium is payable by the Employee, the amount of premium is debited by the employer and collectively paid to the Insurance Company and the remaining procedure remains the same.
Example of Group Insurance
ABC Limited provides legal consultancy to its clients on matters of Intellectual property rights. Due to the inherent scope of work leading to various contingent liabilities and suits clients can file in case of issues in the discharge of the duties, ABC limited has taken Public Liability Insurance for all its employees which safeguards them from any lawsuit filed by its clients while discharging their responsibilities and any financial claim in future.
Types of Group Insurance
There are various types that are available catering to various needs of the group which can be based on health, life cover, retirement benefits, and liability assurance as well as related to compensation liability, etc; however, the major types are enumerated below:
- Group Health Insurance: The most common and prevalent Group Insurance covers the medical and health-related expenditure cost for a group with standardized features and a fixed sum assurance for group members (In some cases the sum assured varies based on the particular grade of employees, other features being equal).
- Group Life Insurance: Usually this is provided by the employer to its employees as a life cover under which a fixed amount is paid in case the employee dies while discharging his/her duties. The premium is either paid by the employer or collected from employees and paid collectively by the employer to the insurance company.
- Group Accident Cover: This type of scheme is usually provided to cover any injury and loss of life on account of an accident during employment. Normally this type of premium is payable by the employer.
- Group Keyman Insurance Cover: This is a late entrant, however, its importance is ever increasing. Normally the key officials in certain industries such as Banking, the Medical profession, and the legal profession take professional decisions in their day-to-day business affairs which can have serious financial implications if things went awry. As such this type of is taken by the employer to limit the financial liability of such key men while they discharge their professional responsibilities independently without the fear of financial failure.
Importance of Group Insurance
It is very important and a necessary part of the benefits offered as part of remuneration in the Service Agreement. Its relevance and utility is not just confined to Employer-Employee relation but can be observed in all types of group setups which includes Non-Employee as well
Further, it helps in providing better and customized benefits to a large group at an economical cost which leads to the better financial and economic well-being of group members.
Benefits
It offers multiple benefits. A few of them are enumerated below:
- It provides medical, and life benefits at an economical cost to group members.
- It acts as a supplement for an employer to attract the right talent. Normally it has been observed that employees prefer companies that provide group insurance.
- It helps companies to save costs as they have a larger pool and can negotiate better with Insurance companies.
- It also provides a tax benefit to employers and results in lowering the tax outflow of the company as group Insurance expenses are tax-deductible.
- In most cases, the group insurance doesn’t require medical tests which are required in the case of Individual Insurance.
Limitations
Despite various advantages, there are certain disadvantages as enumerated below:
- It provides a standardized product that is based on size fit all strategy and may not be a good fit for many group members. For instance, an employer providing a health cover of $10000 for its employees may be sufficient for your employees but not much for employees in a higher age bracket.
- It ceases to exist once the group member leaves the group. In the case of the employment contract, the group insurance ceases to exist once the employee leaves the organization.
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