A group term insurance policy is a different type of life insurance plan in the sense that it covers a group of individuals under a single policy. Moreover, the premium paying term is usually one year as the policy is renewed every year. 

Under the plan, a Master Policy is issued wherein the individuals insured under the plan are named. Each insured member has a sum assured and a premium. The individual premiums are aggregated and paid collectively to the insurance company. The premium can be paid by –

• The group
• Individually by the members
• Partly by the group and partly by its members

Whoever pays the premium, how is the amount determined? Have you ever wondered?

While you know that the insurance company fixes the premium of the group term insurance policy and the premium payment term is one year, there are various factors that affect the premium amount. These factors are as follows –

Factors affecting group term life insurance plans:

• The number of members insured:

The primary determinant of the group life insurance premium is the number of members insured. The higher the number, the higher the premium and vice-versa. So, groups with a higher number of members have to shell out a higher premium for the coverage compared to groups with a limited number of members. This is because as the number of members increases, so does the insurer’s risk.

• The sum assured:

The sum assured also determines the premium and affects it directly. If the sum assured is high, the premium will be higher and vice-versa.

• Additional riders selected:

Group term insurance plans offer additional riders to enhance the scope of cover. Though these riders enhance coverage, they come at an additional premium. So, if the group adds riders to the coverage, the premium will increase for the entire premium paying term.

• The average age of the insured members:

Though the members of the group are of different ages, an average age can be deducted by assessing the individual ages of the members. This average age affects the sum assured. If the members have higher age, the average age will be high, and so will the premium. In other words, premium increases with increasing age.

• Type of group insured:

Different groups have different risk profiles. For instance, a group of labourers will present a higher risk compared to a group of salaried employees. Thus, depending on the type of group insured, the premium is determined. Groups that are considered riskier have higher premiums compared to groups that are considered healthy.

• Any discount allowed by the insurance company:

Insurance companies might allow premium discounts to groups to make their policies more attractive. As such, if discounts are available, the premium will be lower. 

Understanding group term insurance premiums

Now that you know how group-term life insurance premiums are determined, let’s consider a case study to understand it better –

An MNC with 500 employees opts for a group term life insurance policy. Within one year, 100 new employees are added to the roster.

As such, if the company renews the policy the next year, the increased number of employees will result in a higher premium payment.

Now, consider that a trade union with 500 members opts for a group term life insurance policy. In this case, the premium payable by the trade union will be higher than the premium payable by the MNC since the trade union presents a riskier group class compared to an MNC.

The bottom line

The group term life insurance premium, thus, depends on different factors. The insurance company considers all these factors and then calculates the premium for the policy. Know these factors so that you know how the premium is calculated when evaluating a group-term life insurance plan. However, as an individual, you cannot opt for group-term life insurance. You would have to opt for individual term insurance to protect yourself and your family. You can use a term insurance calculator to calculate your premium.