AN INSIGHT INTO GROUP INSURANCE IN INDIA

Abstract The life insurance policy can be issued to individual as well as to groups. Group Insurance follows certain norms for issue of policies to a similar group of people. Under group insurance policy a large number of people are covered under a single policy. These types of policies are generally taken by companies for their employees or clubs for their members and so on. A group insurance policy can be taken by any group of people, big or small, that comes together for any reason, apart from that of specifically benefiting from an insurance scheme. A group policy extends to anyone irrespective of their age, gender, profession, social background and such factors. Group insurance is not limited to only employer-employee groups, but is extended to other homogenous groups too. The Group Insurance Schemes are intended to provide low cost life insurance and inculcate a habit of savings in the employees and provide insurance benefit to the family in case of untimely death. Introduction The tremendous growth of the economy and the consequential growth of the organized sectors lead the insurers to play a decisive role in designing various group insurance schemes. More over group insurance constitutes an important activity of insurance business. Group insurance is a contract of insurance with a company, or association covering a group of people who are engaged in the similar occupations. The group should be such that there would be continuous flow of new members while old members would retire. Individual members do not have to sign any papers and the benefit would be available uniformly to the entire group. The group insurance schemes offered by the insurance companies provide to certain classes of individuals at moderate cost. Group insurance is not only limited to employer-employee groups, but is extended to other homogenous groups too. For instance, in 2008, a school in Gujarat bought a life insurance policy for its students. This paper highlights the group insurance concept in detail. Group Insurance Group Life insurance is a form of Life Insurance that covers the lives of groups of persons such as some or all employees of a business, members of an association or a professional body (accountants, architects or lawyers) fewer than one single ‘Master Policy’. The Group Insurance is based on the risk characteristics of the group as a whole without the intensive underwriting of each individual member. Group insurance is definitely more affordable than an individual insurance and is therefore recommended for large groups represented by any organization the most common being the employer-employee groups It is a single policy covering a group of individuals, usually employees of the same company or members of the same association and their dependents. Coverage occurs under a master policy issued to the employer or association. Group insurance policies offer life insurance protection to all types of groups such as:

• a) Employer-employee groups
• b) Professionals
• c) Cooperatives
• d) Weaker sections of society, etc

Terminology/ basic attributes of Group Insurance

1. Master or Group Policy

A Master or Group Policy is an insurance policy issued to a Master or Group Policyholder (the “Policyholder”) who purchases the insurance to provide the benefit of insurance coverage for others, usually individuals (the “covered parties”).  The individuals who are covered parties, however, are not parties to the insurance contract. Content of Master Policy A master policy or contract is issued by an underwriter to a company. Subsequently, the insurance products that are covered are then made available to employees. The master policy includes details on the conditions, coverage included, and any eligibility criteria that must be met by those who wish to join the plan.

2. Flow of insured’s:

Insured members enter and exit the group and coverage. The constant flow of lives keeps replenishing the group as old members leave with the resultant effect of continued stability of the group’s age and health.

3. Affordability:

Group life insurance is less expensive than individual coverage per unit of benefit. Because the group insurance involves lower administrative, operational and selling expenses and frequent employer cost sharing. Features of Group Insurance The following are the unique features of the Group Insurance compared to other channels of distribution:

1. There is a single policy contract that provides a cover to all members of the group who can change over a period of time. The coverage therefore is specific to the group and not the individual.
2. The groups of people generally share an employer employee relationship.
3. The owner of the insurance is the employer in most of the cases.
4. The group insurance process allows non-restrictive movement of members.
5. Group business typically offers cheaper coverage to the insured compared to individual insurance.

Peculiar Feature of Group Insurance Group policy provides coverage at a lower cost per person in the group. Therefore a group policy is more affordable than an individual policy. Group policy comes with certain constraints both for insurer and participant. If the participant wishes to leave the group, his/her coverage might be ceased. The insurer is required to disclose all kinds of charges, premium rates and premium discount to all members of the group. CHARACTERISTICS OF A GROUP

1. It should be homogeneous by nature of occupation. Therefore members of a social club, a political party or religious establishment cannot constitute a group for insurance purpose.
2. Insurance must be incidental i.e, the group must not be formed mainly for the purpose of obtaining insurance.
3. The group must have a single central administrative machinery to act on behalf of all members.
4. The group should be such that there is a steady stream of new entrants from year to year, so that the group is not stagnant
5. Another important requirement is that a large proportion of the eligible members of the group should join the group scheme.
6. A minimum size of the group is generally prescribed.

DIFFERENT TYPES OF GROUPS:

1. Employer-Employee Group

In this case the employer takes out the master policy for the benefit of its employees and a trust is formed normally to administer the scheme. At times the employer takes such group insurance to meet the statutory need. The examples are Employee’s Gratuity Benefits, Employees Deposit Linked Insurance Schemes. The scheme can be contributory or non-contributory or jointly contributed by the employer and employees.

2. Creditor – Debtor group

The master policy is taken out by the creditors to cover the outstanding amount of loans granted to the debtors. In case of the death of a debtor, the claim amount would be applied towards repayment of loan outstanding in his/her name. Here the creditor may be an employer, an organization giving housing loans, a cooperative credit society, a credit card company etc.

3. Professional group

These may be association of professionals like doctors, lawyers, accountants, engineers, journalists, pilots, insurance agents etc.

4. Other groups

There may be other forms of groups which may be considered eligible for group insurance, i.e. cooperative societies, welfare funds, members of resident society, bank depositors etc. The group should have a reliable identity and should have been formed for some purpose other than group insurance. Nowadays, many nodal agencies, such as central and state government departments and welfare organizations are being allowed to take group insurance schemes covering some specific groups of weaker sections of the society. Group Insurance Vs Individual Insurance Insurance is compulsory, the insurer opt for a group plan or an individual plan. A lot of people rely only on their group insurance plan, while others view this kind of insurance cover only as a back-up plan for their individual cover. Though both the kinds provide the basic coverage, there are some very prominent differences between individual and group insurance policies. The cost of group insurance is lesser, individual insurance will provide a greater and more comprehensive protection. The following passage highlights the basic differences between group and individual insurance plans.  

Group Insurance	Individual Insurance
The insurance contract is drawn in the name of the group	The insurance contract is drawn in the name of the Individual
It is not possible to use the policy for availing loans, etc.	It can serve as an asset and allows to apply for loans, etc.
The insurance coverage can be controlled and even cancelled by the provider.	It is discontinued only by the policy holder.
A group policy cost is less expensive.	It is costlier
Medical tests are not mandatory up to certain amount of cover.	Medical tests are compulsory before buying an individual insurance policy
Premium deducted directly from salary.	Premium has to be paid individually, at stipulated times.

Types of Coverage for Group Insurance A number of group insurance schemes have been designed for various groups. These include employer-employee groups, associations of professionals (such as doctors, lawyers, chartered accountants etc.), and members of cooperative banks, welfare funds, credit societies and weaker sections of society. There are four basic types of coverage provided for Group Business:

• Life cover
• Pension cover
• Medical cover
• Disability cover

1. Life Cover

With group life insurance, a single contract (master plan policy) covers an entire group of people. The employer or an entity such as a labor union is the policyholder, and the employees or members of the group are the ones covered by the group policy. The plan comes up for renewal each year, and both the insurance company and the employer have the opportunity to consider whether to continue it. For the insurance company, it is also an opportunity to revise the rates. The employer is the policyholder and each covered individual is issued a certificate showing his or her certificate number. Some group plans include cash value insurance as an option. For example, some employers offer group universal life, which the employee can purchase by salary deduction. This insurance also covers accidental claims. There are four types of coverage possible in insurance against accidents:

• Death by accident.
• Permanent partial disability.
• Permanent total disability
• Dismemberment.

2. Pension Cover

Pension products provide financial security through a stable retirement income. An organization today, has not only to man the various positions with competent and trained personnel but also has to create an environment wherein they can give their best and derive a sense of well-being, a sense of fulfilment and security and take pride in their continued association with the organization. Provision of pension may be an attraction for such persons to continue in the organization and give their best to the organization, as with continuous improvement in longevity a regular income even after retirement has become a necessity. In this segment, the products fall in the following categories:

• Provident fund.
• Gratuity.
• Superannuation

3. Medical cover

A group or corporate health insurance policy is purchased by an employer for eligible employees of a company. This insurance provides cover for dreaded diseases listed by the company. This policy reimburses the hospitalization expenses, which are reasonably and necessarily incurred. In some cases, it may also provide cover to family members of employees.

4. Disability Insurance

Group disability income protection provides for the partial replacement of earnings lost during disability caused by accident or sickness. Benefits are determined by the income earner’s normal rate of pay. It includes

a) Short-Term Group Disability Insurance

Short-term group insurance provides weekly benefits for employees who are totally or partially disabled by a covered injury, illness, pregnancy or mental disorder. Typically short-term disability insurance is cost prohibitive to an individual. Therefore an individual would be better off signing up for the short-term disability insurance through their employer.

b) Long-Term Group Disability Insurance

Long term disability insurance (also known as LTD) is defined as insurance with an elimination period of at least 90 days.  The benefit period (time when benefits are paid after satisfying the elimination period) is typically 2 years, 5 years, 10 years, to age 65 or lifetime. Long term disability insurance is intended to cover more catastrophic types of claims that last a long period of time. Group Insurance Products The popular type of group insurance products are

1. Group Term Life Insurance

Group (Term) Insurance Scheme provides life insurance protection to groups of people. Administration of the scheme is on group basis and cost is very low. Under Group (Term) Insurance Scheme, life insurance cover is allowed to all the members of a group subject to some simple insurability conditions without insisting upon any medical evidence.

2. Group Saving Linked Insurance

The Group Savings Linked Insurance Scheme (GSLI) offers insurance cover along with an element of savings. The contributions under this scheme are deducted from the monthly salary of the members. This scheme is allowed only to selected Employer-Employee groups such as

• Quasi-government bodies
• Public sector corporations
• Reputed public sector firms
• Reputed private sector companies which maintain accurate records and files of their employees

3. Group Credit Life Insurance

The Group Credit Life Insurance plan provides life cover for a group of employees who are borrowers from the same employer, (or some credit institution, bank, finance provider etc) by paying a lump sum towards repayment of loan amount on the death of employee. The plan can be structured in a way that either the original loan amount or the outstanding value of the loan can be covered, as per data provided by the employer. The premiums can be adjusted every year according to the reducing principal amount.

4. Group Dental Insurance

Under this scheme the coverage is generally provided for preventive services, (cleanings, x-rays, and exams), minor restorative services (fillings), and major restorative services (crowns, bridges, root canals). These may include annual recall exams; cement restorations; crowns and fixed bridges; dentures; extraction of teeth and other surgical services; fillings; fluoride treatments; scaling and polishing; major repairs and restorations; root canal therapy and X-rays. Sometimes and optionally, orthodontia is covered.

5. Worldwide Travel Group Insurance

Worldwide Travel insurance includes travel assistance for medical emergencies and coverage including: ambulance services; dental services; diagnostic services; hospital accommodation; meals and accommodation; medical appliances; physicians, surgeons and other practitioners; prescriptions; nursing; referrals outside of the country; return home as a result of illness; return of deceased; transportation to visit the covered person and vehicle return.

6. Disability Insurance

Group disability income protection provides for the partial replacement of earnings lost during disability caused by accident or sickness. Benefits are determined by the income earner’s normal rate of pay. There are basically two types of Term disability Insurance: Short Term Disability Insurance and Long Term Disability Insurance.   Group Insurance Scheme Offered by the LIC The standard group insurance products generally offered by Life insurance companies are:

1. Single Premium Group Insurance

Single Premium Group Insurance is a non–linked non-participating single premium group term insurance plan. This plan offers a flat life cover on death of the group member during the policy term. An employer willing to cover their employees or a non-employer- employee homogeneous group may take this plan for their members. In case of unfortunate death of a member covered under this plan, Sum Assured in respect of that member shall be payable.

2. New Group Leave Encashment Plan

New Group Leave Encashment Plan is a non–linked non-participating, fund based Variable Insurance Product. This plan helps to meet the employer’s Liability for providing Leave Encashment facility to their employees. The Plan also offers Life Cover Benefit so that in case of death of a group member an amount equal to sum assured in respect of that member will be paid. The amount of life cover in respect of each member shall be guided by the scheme rules of the employer. Each policy year a Policyholder shall pay Contributions to secure Leave Encashment Benefit as per Scheme Rules and also to provide Life Cover Benefit. The Contributions received under the scheme may include Contributions towards the past service liability and the Contributions in respect of that year. The employer/trustees may pay the Contributions at any time during the year. All the Contributions paid by employer/ trustees will be credited to the Policy Account maintained in the name of employer/trustees.

3. New Group Superannuation Cash Accumulation Plan

This is a non–linked non-participating Group Superannuation Cash Accumulation plan. This plan is suitable for employer having Defined Contribution/Defined Benefit Superannuation Scheme for their employees/members. An employer willing to fund the superannuation benefit may create a Trust and appoint Trustees. The Trust so formed will be the Master Policyholder/Policyholder of the scheme. Otherwise the employer itself will be the Master Policyholder/Policyholder. The contribution can be paid at any time during the year. Contributions paid by employer/trustees will be credited to the Policy Account maintained in the name of employer/trustees. In case of Defined Contribution Scheme, individual member-wise Policy Account will also be maintained.

4. New Group Gratuity Cash Accumulation Plan

New Group Gratuity Cash Accumulation Plan is a non–linked non-participating, fund based Variable Insurance Product. This plan helps to meet the employer’s obligation for statutory Gratuity Benefit to their employees. The plan also offers Life Cover Benefit so that in case of death of a group member an amount equal to sum assured in respect of that member will be paid. The amount of life cover in respect of each member shall be guided by the scheme rules of the employer.

5. New One Year Renewable Group Term Assurance Plan I

It is a non–linked non-participating yearly renewable group term insurance plan. It provides valuable life cover to the employees/members of a homogeneous group at attractive premium rates. The amount of life cover in respect of each member shall be guided by the scheme rules of the group. The total premium payable at commencement and subsequent renewals shall be equal to the sum of premium in respect of individual members of the group. The main features of this scheme are

• It ensures financial security for member’s family at very attractive rates.
• The Premium rates dependant on the size and risk profile of the group.
• In case of unfortunate death of a member, a lump sum (Sum Assured) shall be paid.

 

6. New One Year Renewal Group Term Assurance Plan-II

It is a non–linked non-participating yearly renewable group term insurance plan. It provides valuable life cover to the employees/members of a homogeneous group at attractive premium rates. The amount of life cover in respect of each member shall be guided by the scheme rules of the group. The total premium payable at commencement and subsequent renewals shall be equal to the sum of premium in respect of individual members of the group. In case of unfortunate death of a member, a lump sum (Sum Assured) shall be paid. Conclusion Group Insurance safeguards a company’s most valuable assets namely employee. Members of group insurance plans are insured and provide necessary financial facilities in the event that they die or are diagnosed with a terminal illness, or suffer from a partial or total disablement from sickness or injury and cannot work, either temporarily or permanently. Members have peace of mind that they are covered 24 hours per day, 7 days per week, even when they are not working. Group insurance is a beneficial, cost-effective and hassle-free insurance solution that provides at least a minimum cover to the members as a benefit of being part of that particular group. It is, however, important to consider a group insurance plan only as a supplementary plan and opt for a separate individual plan too, since the benefits of the group plan terminate if the policy holder exits the group.

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About the Author

M.J. Senthil Kumar

Associate Professor, Department of Commerce (UG)

Sri Kaliswari College (Autonomous), Sivakasi 626130.

&

Dr.P. Sundara Pandian

Principal, VHNSN College (Autonomous), Virudhunagar