How does group term life insurance work?

Employees are the assets of any organization. Any mishap happening to the employee can negatively impact his/her family and the organization. Being a responsible employer, purchasing a group term life insurance policy can ensure the financial security of the affected family. As the saying goes, A little kindness goes a long way!

But, let's look at what is Group Term Life Insurance?

What does group term life insurance cover?

Group Term Life Insurance (GTLI) covers a group of people in exchange of a fixed premium rate. A group term life insurance is a blanket cover, purchased by the employer for the employees. This secures the employees and their families with a death benefit. This means, during the employee’s death, the family/the nominee is paid with the sum assured amount.

Now can the coverage of a group term life cover be increased?

Of course yes, with the help of group term life insurance riders, the scope of coverage can be increased. This means not only death benefits but other benefits can be added to the existing policy.

A critical illness rider to the existing group term insurance can offer a lump-sum assured in case the employee is diagnosed with a critical illness mentioned in the policy document. A terminal illness rider covers the employee for terminal illness. This will be settled even before the death of the employee. A doctor declaration is mandatory for claiming this rider.

These riders offer extensive coverage to the base group term life insurance policy purchased by the employer. However, please note that the sum-assured settlement always happens as per the terms and conditions of your policy.

Read: Group term insurance benefits

How does group term life insurance work?

Understanding how group term life insurance works is essential for HR leaders and founders evaluating employee benefits. A group term life insurance policy is a master policy purchased by an employer to cover all eligible employees under one contract. Here’s how the process typically works:

Step-by-step process

1. Employer purchases the policy
   The organization selects a suitable group term life insurance plan based on employee count, age profile, and desired sum assured structure (flat, graded, or salary multiple).
   
   
2. Employer becomes the master policyholder
   In this arrangement, the company is the policyholder, while employees are covered members under the master contract.
   
   
3. Employees are enrolled as insured members
   All eligible employees are automatically added to the group term life cover, usually without individual underwriting.
   
   
4. Premium is paid by the employer
   In most cases, the employer pays the premium fully. Some companies may allow partial contribution or voluntary top-ups from employees.
   
   
5. Coverage remains active during employment
   The policy provides financial protection as long as the employee remains on the company payroll.
   
   
6. Claim is filed in case of death
   If an employee passes away during active employment, the nominee submits a claim along with required documents.
   
   
7. Insurer Verifies and Settles the Claim
   After document verification, the insurer pays the sum assured to the nominee as per policy terms.

What are the benefits of group term life insurance?

To truly understand group term life insurance, it’s important to look at the value it delivers to both employees and employers. A well-structured group term life insurance policy is more than just a compliance requirement,  it’s a strategic employee benefit.

Here are the key group term life insurance benefits:

1. Financial security for families

The primary objective of a group term life insurance plan is to provide financial protection to an employee’s dependents. In case of an unfortunate death during employment, the nominee receives the sum assured, helping the family manage immediate and long-term financial obligations.

2. Cost-effective coverage

A group term life plan is significantly more affordable than individual term insurance because the risk is spread across a large pool of employees. This risk pooling allows insurers to offer lower premiums.

3. Guaranteed acceptance

Most employees are covered under a group term life insurance policy without extensive medical underwriting. Medical rejections are rare, making coverage inclusive and accessible.

4. Boosts employer branding

Offering group life cover reflects responsibility and empathy. It strengthens employee trust and improves retention. In competitive job markets, such benefits influence talent acquisition decisions.

5. Tax benefits for employers

Premiums paid toward a group term life insurance plan are generally treated as business expenses under Indian tax laws, offering financial efficiency for companies.

6. Simple administration

Since the employer holds the master policy, HR teams can manage enrollment, exits, and coverage details centrally. Modern dashboards make policy administration seamless.

What are the limitations of group term life insurance?

While understanding the group term life insurance meaning, it is equally important to recognize its limitations. Though valuable, this coverage comes with certain constraints.

1. Coverage ends with employment

One of the biggest limitations of a group term life insurance policy is that coverage typically ends when the employee leaves the organization. Some insurers may offer conversion options, but these usually come at higher premiums.

2. Limited customization

Employees generally cannot modify coverage terms individually. Since it is a group term life insurance plan, customization is structured at the employer level.

3. No maturity benefit

This is a pure term insurance arrangement. There is no survival or maturity payout. The benefit is payable only in case of death during the policy tenure.

4. Employer-controlled structure

The employer decides the sum assured structure, riders, and overall coverage framework. Employees have limited control over policy design.

Now let us address the third question - How is the premium decided for your group term life insurance policy?

Group term life insurance premium

In most cases, the group term insurance premium is paid by the employers. The premium paid towards the policy is not fixed, it can vary according to the employees (if the employer opts). The premium depends on various factors like the age of the employees, nature of work and the sum assured to the employees.

Why do age, nature of work and sum assured play a major role in deciding the premium?

A group term insurance premium increases with age, because according to the insurer age directly impacts the health and vulnerability. If the employees are involved in high risk jobs then also the premium increases. In case of sum assured, the premium is affected because of the following reason. 

A sum assured amount can be of three types -

1. A flat sum assured - all employees are covered with same sum assured amount irrespective of their designation. Usually opted for small organizations and Startups.
2. A graded sum assured - the employees sum assured is decided by their designation. For instance, an employee in the top leadership would have a greater sum assured than others. Usually applied to organizations with multiple hierarchy. 
3. A salary multiple - when organizations have employees where varying compensations are offered for same level employees.

So as the sum assured increase the premium increases.

How to claim group term life insurance?

A group term life insurance death claim can be made with the following documents.

1. A duly filled claim form
2. Policy copy 
3. Original death certificate issued by the local authorities
4. Letter from the employer confirming the death of the employee
5. Identity proof of the claimant
6. Proof of address of the claimant
7. FIR copy (if required)
8. Bank book copy/copy of cheque

With the following documents reach out to Pazcare customer support to help you with the claim process. Once the claim is verified, the claim will be settled to the nominee as per the terms and conditions of the policy.

How to purchase group term life insurance from Pazcare?

Here are the following steps to purchase your group term life insurance policy from Pazcare -

1. Get in touch with Pazcare. Our insurance experts will revert back to you and help you with the purchase process.
2. Decide the sum assured - a flat or graded sum assured. Along with this, decide on the riders that can be added to your base policy. Remember, riders are not mandatory but an optional benefit.
3. Pazcare insurance experts will provide you with a premium estimate based on the active employee data shared. A group term insurance premium is often cheaper than a retail policy.
4. Once the premium is paid, the master policy copy will be issued. Make sure the employees and the organization is well aware of the terms and conditions of the policy.
5. The employees can use the Paz app for mobile to access the policy. The employers can use the tech-enabled user-friendly Pazcare dashboard to administer the policy.