Is the life insurance coverage provided by your employer sufficient? – Advisor Forbes INDIA
Group insurance is when an organization provides insurance to a group of people under a single primary life insurance policy, which is usually term insurance or health insurance. A term policy is the simplest form of life insurance, in which, in the event of the premature death of the employee, his proxy receives a death benefit. The standard amount of coverage is either equivalent to a set multiple of the covered employee’s annual salary or depends on the employee designation, and employers typically pay most or all of the premiums.
In accordance with the company’s concern for the well-being of its employees and their families, companies offer group life insurance cover as part of the employee package. It is undoubtedly an attractive proposition. However, it is also prudent to understand the benefits of employer-sponsored life insurance.
Some of the benefits offered by group insurance include:
For young people starting their careers, insurance is the last thing on their minds. The joy of being financially independent takes precedence over the constitution of a secure corpus. Life insurance will provide their dependents with the security they need, in the event of an unforeseen accident.
Since your employer pays the premium, you can use the money for other necessities. Group insurance is ideal for people who do not have the financial means or who have not yet taken out personal life insurance.
As your needs change, you can easily increase your coverage significantly, in multiples of your annual salary, by paying an additional premium on top of what your employer pays. Most employers offer this choice.
- Benefits of the endorsement for additional protection
If your employer offers this option, you can purchase and add riders to your base policy. Riders are optional additional conditions that provide additional protection against future risks such as critical/terminal illness, accidental death and permanent/partial total disability.
The death benefit is tax exempt.
If an employee dies while still employed by the organization, the insurance pays a death benefit to the survivor(s).
Let’s look at an example of how group coverage can be beneficial.
Mohsin Siddique, the only paid member of his family, had only been with the organization for two years when he lost his life while hiking in the monsoon. He was covered by his employer’s group life insurance policy, in which the death benefit was paid to his mother. This allowed him to keep paying his bills, avoiding financial distress during an emotionally difficult time.
Is group insurance enough?
Certainly—Having your employer pay for your insurance is a blessing. However, group insurance only serves a specific purpose for a specific time. You must assess your needs to meet uncovered needs (if any):
- The policy may be insufficient to cover all your needs
Employers usually provide basic coverage, which might work well for people with no responsibilities. However, if you have dependents such as aging parents, non-working spouse and/or children, the death benefit may not be enough to cover all of their needs. Remember that inflation is only soaring. Second, the salary-replacing death benefit does not take into account one-time earnings, such as bonuses, commissions, and other benefits the employee may have accrued during employment.
- Only permanent hires are eligible
For an employee to be eligible for group coverage, they must be a permanent employee. This means that if you are a contract employee or a part-time employee, you will not be eligible for coverage.
- Coverage ends when you change jobs
If you change or lose your job, you also lose employer-provided life insurance. This means that until you find a job, you will be without the security of insurance. There is no guarantee that the next employer will offer you insurance and even if they do, they may not offer the same coverage, as it will depend on your age and health.
Employer-provided insurance usually only includes basic coverage, which may not meet your needs. They also do not include additional runners, which will need to be purchased by you.
The following cases better explain the disadvantages mentioned above:
- Case 1: Suvarna Prabhu, a middle manager, was single when she joined her organization. In the years that followed, she married and had two children. Her parents also retired and as Suvarna was their only child, the responsibility of caring for them fell to her. Now imagine that if something were to happen to her, would the death benefit be enough to cover her children’s education and marriage costs as well as her parents’ growing health care bills?
- Case 2: After Covid-19, Surabhi Shah’s company had to downsize and she went from a full-time employee to a part-time employee. Her insurance ceased immediately and taking out an individual policy proved costly as she was in her 40s and would have to pay a much higher premium.
One size does not fit all
Even if your company covers you, it’s always a good idea to explore other insurance providers and purchase a complementary personal policy that meets your current and future needs. If you buy an additional policy when you are young and healthy, the premium is low. So buying an individual policy will be affordable and give you better coverage than what your employer provides.
Insurance is long term. It must take into account your future financial needs (and even after retirement). Life insurance offers many options, and you’ll find a plan that best suits your needs. There are five main types of insurance that can easily meet your desired needs:
1. Term plan
Term insurance is a pure risk plan that protects your future income and your family’s financial security. In the unfortunate event of an accident, illness or death from natural causes, the plan is purchased for a fixed term ranging from 10 to 40 years. The premium is fixed and must be paid for the policy to remain valid. If the policyholder dies before the end of the contract term, the agent receives a death benefit.
2. Whole Life Plan
Whole life insurance covers you up to age 99 and provides a death benefit, a survivor benefit and a maturity benefit. This is ideal for retirement planning.
3. Unit-Linked Insurance Scheme (ULIP)
ULIPs offers personalized options that can evolve according to your needs and priorities. ULIP offers a double advantage of investment (stocks, bonds or both) and insurance. While ULIP can be a great generator of wealth, the returns are market-linked, subjecting them to market risk.
4. Staffing scheme
The endowment offers the dual benefit of insurance and savings, as well as some level of guaranteed returns. It is ideal if you want to build a corpus for future needs. If the insured survives the term of the policy, the amount at maturity is paid. Otherwise, the beneficiary receives the sum insured.
5. Pension plan
Retirement or retirement plans offer the dual benefits of investment and insurance and guarantee a steady stream of income for your retirement years. Whole life insurance is a type of retirement insurance where the earlier you invest, the better. It will help you build a large corpus thanks to the composition effect.
An insurance provided by the employer as well as a personal policy can protect you from unexpected surprises and always protect you against risks. Nevertheless, it is worth taking out supplemental life insurance that suits your needs. Although employer group life insurance coverage provides you with coverage, relying on it alone can be risky.