Office Mediclaim Coverage is free or cheaper than a normal policy? Yet we (financial planners) say you should have a standalone policy for your family other than what office provides. Why? The key lies in understanding – What is a Group Insurance Policy?

Let us see how Group Insurance Policy is different from normal insurance.

So now you must have guessed that the office does not provide you an “individual policy”. They make you part of a group (which is your office staff) and buy a common cover for you. It has its advantages & disadvantages. Let’s check the details?

What is Group Insurance Policy?

A group insurance policy is an insurance cover which is not standardized for you. They provide standard cover at very competitive premium rates.

The concept is based that the risk is spread over a larger number of people in the group. If you look at your office, you will find a wide variety of profiles. Young trainees to old bosses occupying the corner offices.

Group insurance means the cover is made available to members irrespective of age, gender, socio-economic background, profession or profile of work.

Groups do not mean only employer-employee is a group. It may be any group like holders of the same credit card, members of clubs, passengers traveling together (Indian Railways) or citizen of a country (Remember Rs 300 for 2 lakhs offered by Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY).

The most common form of Group Insurance policies is Term Plans & Health Plans.

How Group Insurance Works?

First of all, in Group Insurance, only one policy is issued to the group head. This is called the Master Policy or Master Contract.

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Group Insurance Policy can be for life insurance, medical insurance or general insurance.

Premiums can be charged to the members or paid by the group. Members can come and go in out of the group. New members will get proportionate coverage until the policy is in force.

Most Important: The cover can cease if one leaves the group.

So if you leave the job or get terminated, the life cover & health benefits stop until you join the new job (and the new employer also provides the group insurance covers).

Advantages of Group Insurance Policy

Usually free or comes at a very low cost. This becomes a benefit when you have aged parents or ailing family member who requires medical
Forms part of basic cover when one starts his/her career.
Very less paperwork, as details are provided by HR or the group manager.
Pre-existing diseases are usually covered.
The policy benefits are Tax Exempt.
You don’t pay premiums. Group Head pays it. They may collect from you in full or subsidize.
No Medical tests are required to join.
In health policies, the family members which are costly to cover in standalone policies like aging parents, newborns are covered from day 1.

Disadvantages of Group Insurance Policy

The employee or the group member has little to no control over their individual coverage. You cannot tell your bank to deduct 600 and give you double insurance under PM’s Insurance Policy!

Coverage ceases if you leave your job. If you do not have own policy, you need to pay for it. Also, the track (health) will not get any benefit with the new policy issuer.

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You may see, that healthier individuals pay the same premiums that are paid by frequent claimers. It’s a discord here.

Also, you may need additional coverage as group coverage may be inadequate. For eg, your insurance cover remains the same even though you may take a home loan.

There is a risk that your employer may stop or revise the benefits.

Should you completely rely on Group Insurance Alone?

The main disadvantage is UNCERTAINTY. I will give you 2 examples.

One of our client who had a Health Cover from his employer covering immediate family & parents. His company ran into business consolidation and company announced that now parents will be covered at additional cost to be borne by the employee. The cost was comparable to a policy outside. Also in case if he decides to cover his parents from another insurer, many pre-existing diseases will be covered from second & some from the third
In another example, the company in which our client was working, had a management reshuffle and HR head left. New Head of HR joined after 6 months and in between the group policy expired. The employees came to know when one of them went for a surgery and the hospital denied the claim. Management said – Health Coverage is a perk & they are not liable.

Such uncertain events demand that person should not rely on Group Plans alone. Recently we had Jet Airways closed down & Cognizant lay off. S/He should have his own arrangements also.

What are your thoughts? Share your experience with Group Insurance Policies in the comments section below.