Group Insurance Is A Plan of Insurance: Group insurance is a plan of insurance, which provides cover to a large number of individuals under a single policy called the “Master Policy”. The individuals covered under the master policy are not parties to the contract. The contract will be between the insurer and a body that represents the group of individuals covered. This body may be the employer, who is interested in obtaining benefits for his employees through insurance.
The body may be an association of individuals through whom the collective interests of the individuals are safeguarded, like a trade or professional association. A bank of financier can make arrangements through a group policy to protect his interest against defaults occurring because of the death of the debtors.
In India, the development of group insurance has taken place significantly only since the early 1960. Before that, the group insurance business was very little. Originally, group insurance was confined to employer-employee groups only. Since then the game has been extended to cover different groups, provided they are identifiable by homogenous common attributes, like profession, membership of a cooperative Society, etc.
The number of persons covered by group insurance policies is increasing at a faster rate then the individual policies. New insurers find that they can reach large numbers of people easier through group insurance.
Group insurance schemes are used by the Government, as instruments of Social Welfare. Social Security is a concern of Governments in all countries. But the dimensions of social Society very considerably. In some advanced countries, the entire living expenses of elderly persons are borne by the State as a social measure. In some countries, medical care is free. In some countries, benefits paid by the state during unemployment are more than the salaries of the employed.
Social Welfare Measures are generally administered by Governments out of funds generated through levies and taxation. The costs of administering these schemes have been increasing over the years and governments have found it expedient to use insurance company to pursue these objectives. Insurers are seen as the natural instruments to take over these functions, because life insurance business has a powerful social, dimension.
#What is group insurance?
In group a large number of individuals are covered under a single policy called the “master policy”. The insurance contract is with the body that represents the individuals, the employer or the Association. Because the contract is with the body, that body is the policyholder. The individuals are the beneficiaries. The amount and terms of insurance are negotiated by the policyholder and not by the individual beneficiaries. The benefits will be determined on bases that apply uniformly to all the individuals.
According to IRDA guidelines issued on 14.07.2005, individual members who are the beneficiaries of the group cover are to be given confirmation of the benefits secured by the master policy. In the case of groups other than employer-employee groups, the individual members have to be given certificates by the insurer or by the group organizer in the form approved by the insurer. In the case of employer-employee groups, the employer can give the confirmation of the employees.
The premium will be paid to the insurer by the policyholder, who may, or may not, collect the same from the individuals concerned. If the individuals contribute to the premium, that may be either full of partial. In many employers’ schemes, the entire premium is paid by the employer.
Sometimes, employees are made to contribute part of the cost. If the premium is collected from the individual’s concerned by an employer, the premium may be deducted from their salaries. That does not make this a policy under the salary savings scheme, because of two basic differences. One is that the ownership of the policy is with the employer and not the employee. Secondly, the extent of cover and the terms are determined by the employer and not by the individual.
As many persons are covered under one single contract, the administrative costs are low. Because the coverage is not at the choice of the individual concerned, the chance of an adverse selection is low. Therefore, the rules of medical examination are more liberal in the case of group insurance policies.
Unlike other insurance policies, the group insurance policy does not have a fixed term. It’s a policy in perpetuity, renewable every year and can be terminated by either party at the end of any year. The terms and the coverage can be renegotiated at the time of renewal.
#Essential Features of Group Insurance Schemes
The most important requirement is that the group must not have been formed for the purpose of taking advantage of the insurance scheme. The group must have some other reasons for bonding. Entry into or exit from the group must be for reasons other than the availability of insurance cover under the scheme.
The premium under a group insurance policy will change from year to year. This is so because the number of persons covered would change because of exits and new entrants. The amount of cover will also vary because of changes in age, income, rank etc…
#Group Insurance Schemes
One of the earliest schemes is the One Year Renewable Group Term Insurance Scheme. Under this, the members are covered for specific amounts, payable on their death within the year. This is the simplest and the cheapest of the schemes. This is particularly helpful in the case of employees, who die young and the amounts due under gratuity and provident fund schemes are small.
#Group Savings Linked Insurance Schemes
Group savings linked insurance schemes are offered to employers for the benefit of the employees. Contributions from the employees are made up of two elements. Part of it is used as the premium for a term insurance cover of the agreed amount. The balance is credited to a savings scheme.
#Group Gratuity Schemes
Group gratuity schemes are also offered to employers and are related to the gratuity of employees. Gratuity is paid to employees who retire or die after long years of service. Since 1972, payment of gratuity has been made compulsory by the payment of gratuity act. The amount of gratuity is linked to the number of years of service and the salary drawn during the last few years.
#Group Superannuation Schemes
Group superannuation schemes are also offered to employers and are related to the payment of pensions to employees. Pensions are increasingly becoming longevity of people. Lump sum benefits, mainly because of the increasing longevity of people. Therefore, employers offer pension benefits. The group superannuation schemes offered by insurers are intended to help employers administer the pension funds.
#Group Leave Encashment Scheme (GLES)
As per the amendments to the companies act, made in 1988, and the accounting standards, employers have to fund the liability in respect of the leave encashment facility. The group scheme enables such funding. In addition, the scheme can provide for a SA payable to the families of employees who die while in service.
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