How does a group life insurance policy work?

As the name implies, a group life insurance policy is a single contract that covers a group of people. There are no limitations on the number of people that can be included in a group life insurance plan.

The working of a group life insurance plan is similar to regular life insurance policies, albeit with a few changes. Individuals of a particular group (say employees of an organisation, or members belonging to a particular association) are enrolled in the plan.

The employer purchases a master life insurance contract from an insurance company. The premium of a group plan is based on the number of members included in the plan and the coverage. When there is an increase in the members of the group, the premium of the plan increases accordingly. Similarly, the premium costs reduce when the number of members in the group decreases.

Generally, the premium for each individual in a group plan is lesser than availing separate policies for each member. This is because, with a group plan, the administrative costs and other associated policy costs are clubbed together, thereby reducing the overall charges.

The premium for each member in a group life plan can be paid either by the employer or shared by each member included in the plan. If the premiums are paid in full by the insurer, then it is known as a non-contributory group plan. In this case, the members of the group enjoy the coverage without paying premiums. On the other hand, if the premium costs are shared by the employer and employee, it is known as a contributory group plan.

The validity period of a group plan is until the employee is employed by the company or until the policy term, whichever comes first. The employee is also allowed to convert his group insurance policy to individual insurance if he decides to leave the employer.