Group insurance

Many times, a situation arises, when it becomes necessary to take an insurance for a group of individuals. For example, a group of individuals may be working in a particular department within the company and thus, may face common work hazard. In such cases, it is much more easier to take a joint cover for all these individuals that provides them protection against the particular hazard. Here, group insurance policies come in handy.

Process of Premium Calculation for Group Insurance Policies

As group insurance policies do not involve a single individual, as in the case of most other insurance policies, the process of calculation of premium for the same is also different. At the same time, the cover that it offers is also limited in nature.

Usually, in case of an insurance policy for an individual, the history of the individual is taken into account. Thus, if you are applying for car insurance, you will be charged higher premium, in case you have a bad driving history. On the other hand, in case of group insurance policy, such individual history does not have much significance. For example, if a particular person has suffered from a number of accidents, while using some machine, it will not increase the premium of the group insurance policy, if he is included in the group.

The main reason for lower premiums is, that the individual members of the group have not obtained the policy with the intent of getting the insurance. Thus, the people do not take group insurance, as they believe that they are at risk from a particular thing, but have taken the policy for some other reason. These may include belonging to a particular society, working for a certain employer etc.

Thus, the principle of adverse selection is not considered to be valid in case of group insurance. The term adverse selection implies that the amount of insurance that a person takes is directly proportional to the amount of risk that he faces. Thus, the cost of the premium is equal for all the people belonging to the group.

Advantages of Group Insurance

• It is arranged by the organization, hence one simply has to pay the premium in order to join.
• Companies also usually offer group discounts, thus further reducing the premium.
• Compensation for life insurance is usually larger and conversion facilities for life insurance is provided to each member of the group, within 60 days of termination.
• The coverage usually is more comprehensive and a certificate is issued showing the same.

Disadvantages of Group Insurance

• In the later years, coverage is likely to reduce. Also, there may be an increase in premiums without any prior notification.
• As the coverage is provided to an individual without any assessment of his own risks, the same is liable to be taken off, without his prior consent. Thus, changes may be made in the coverage, without asking for your opinion about the same.
• There are many restrictive clauses mentioned in the policy, including a clause that makes the insurance void, if the individual commits suicide within 2 years of taking the insurance.
• The master policy for the insurance is held by the association. Thus, a person can choose to opt out from the group and choose an individual insurance policy instead.
• Negotiations for the coverage offered are done in between the association and the insurance company. A member of the group may not have any say in the same.

Other Conditions associated with Group Insurance

If your employer provides you with a group insurance policy, then you usually have to pay the first premium within 30 days of employment. Else, you forfeit the group insurance benefits. In case of group health insurance, you may be allowed to choose a medical practitioner of your choice provided that he has the necessary certifications, depending on the type of plan. The insurance company may also come up with a list of hospitals in your locality, where you can avail any medical services.

Thus, group insurance plans come with their own set of benefits and disadvantages. If you want to avail greater coverage at lower rates, then group insurance plans should be a good choice for you.