<b>Your money:</b> Don't rely on your group life cover alone

If you quit or change jobs in your 40s, buying an individual term plan will be expensive

A recent survey by Marsh India Insurance Brokers found the percentage of companies offering life insurance coverage as part of employee benefits had increased from 60 per cent in 2010 to 74 per cent in 2016-17. But, the average sum assured has remained constant at two times the annual gross salary of the employee. So, if your annual salary is Rs 10 lakh, you can expect coverage for Rs 20 lakh. Given the inadequacies of group life covers, every employee needs to supplement it with an individual life cover at an early stage in their careers.   

Companies can offer either fixed grade-wise coverage, or coverage that is a multiple of the employee’s salary. “In the latter case, the cover increases as the employee’s salary increases,” says Mahavir Chopra, director-health, life and strategic initiatives, Coverfox.com.

As a thumb rule, the sum assured for a term life plan should be seven to 10 times your annual salary, plus any loan that you may have. The first shortcoming of the group life cover is that it is usually too small. “The coverage provided by the employer may not be adequate as it depends on multiple parameters, including its financial budget every year,” says Chopra. 

The second shortcoming of an group life cover is that it ceases to exist once you leave the organisation. When an individual switches to a new employer, he/she would be covered by the group term insurance, if any, being offered by the new employer. The previous policy can’t be transferred. The older group policy cannot even be converted into an 

individual policy. The cover ceases as soon as the employee and the employer part ways. 

Suppose that at age 45 you decide to turn into an entrepreneur and your employer-provided life cover ceases to exist. You then decide to buy an individual policy. Buying a life cover at that age will cost you more. Also, if you have a medical condition such as diabetes or blood pressure, it is possible you may be denied a cover. Hence, even if you have an employer-provided term life insurance, you must buy an individual term cover of your own at an early age. Usually, if you already have a life cover, you have to disclose it while buying another one. “But in this case, while buying an additional individual cover, the existing group cover is usually not considered, since it is not something employees can control,” says Deepak Yohanan, founder, Myinsuranceclub.com. 

Today, employees are demanding to have employer-facilitated voluntary programmes, including top-up for term life plans. Says Sanjay Kedia, country head and chief executive officer, Marsh India Insurance Brokers: “Employees are willing to pay the premium for an insurance programme that is facilitated by their employer, as such plans offer better cost efficiency and claim recovery,’’ he says.
 

A third shortcoming of a group plan is that a person has to fulfil the condition of being active at work to be eligible for the claim. This means that if the policyholder falls ill and is on leave, he should have reported back to work for seven days to be eligible for the claim. If something were to happen to the employee while he is on leave, his family may not get the claim. “Insurance companies include this condition to ensure that the illness is not a critical illness,’’ says Arvind Laddha, deputy CEO, JLT Independent Insurance Brokers.