Insurance is an essential part of the benefits package offered by employers to their employees and it can be of different types. Here we will discuss as to what is group term life insurance and its pros and cons in details.
Group Term Life Insurance or GTLI in short is a type of life insurance in which the employees of an organization are covered under a single insurance contract. The insurer issues one master contract that covers a group of employees who meet certain criteria like tenure in the organization or being a full time employee.
Group term life insurances are usually cheaper than the individual life insurance policies for equal benefit amount. Due to this reason the participation in this type of insurance policy is quite high. Most employers provide a basic Group Term Life Insurance policy free of cost to their employees, with additional benefits at a premium payable by the employee.
Pros and Cons of Group Term Life Insurance
A Group Term Life Insurance has certain advantages, which makes it a popular choice for employees. Firstly, the cost of the coverage or the premium is usually lower than that of an individual life insurance of same benefits.
And in most of the cases, the insurer provides specific discounts depending on the number of people enrolling for the program. This brings down the premium charges even further. This insurance is normally provided for a period of one year, with options to renew on lapse.
Secondly, individual employees get covered for an amount which is generally one of the two cases mentioned below:
- A fixed amount of money like $50,000.Or an amount of money which is a multiple of the employee’s current base salary, depending on factors like age and level. Usually this is about 2 to 3 times the base salary.
- In either of the above cases, the insurance ensures the receiver gets a lump-sum if a qualifying event occurs. Employees can also choose dependents as beneficiaries to their insurance plan.
The only drawback of the Group Term Life Insurance is that because the insurer issues the contract to the employer, individual employees do not own the actual insurance policy. They receive a certificate of insurance, which validates their participation in the policy.
This has an impact only when the employee is terminated or resigns from their job. The term life insurance in that case cease to exist, unlike an individual life insurance. However, organizations sometimes have the provision of converting the term life insurance to a personal one, but that does not always prove to be cost effective.
To sum up, a Group Term Life Insurance policy is essentially a very effective benefit for an employee to receive. The additional premium costs are reasonable in most of the cases and the return on the investment is considerably higher than other insurance policies.
Hence, if an organization offers Group Term Life Insurance as part of their benefits package, it is almost always prudent on part of the employee to partake in the same.
Further reading: What is Credit Life Insurance?