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What is Group Insurance?

Group insurance is an insurance that covers a group of people, for example the members of a society or professional association, or the employees of a particular employer for the purpose of taking insurance.

Group insurance may offer life insurance, health insurance, and/or some other types of personal insurance.

Group life insurance is offered by an employer or another large-scale entity, such as an association or labor organization, to its workers or members. It is fairly inexpensive, may even be free, and is pretty common nationwide. It has a relatively low coverage amount and is typically offered as a piece of a larger employer or membership benefit package.

KEY TAKEAWAYS

  • Group life insurance is offered by an employer or another large-scale entity, such as an association or labor organization, to its workers or members.
  • Group life insurance is fairly inexpensive and may even be free.
  • Some organizations require group members to participate for a minimum amount of time before they are granted coverage, which is generally pretty basic.

Group Insurance health plans provide coverage to a group of members, usually comprised of company employees or members of an organization. Group health members usually receive insurance at a reduced cost because the insurer’s risk is spread across a group of policyholders. There are plans such as these in both the US and Canada.

KEY TAKEAWAYS

  • Group members receive insurance at a reduced cost because the insurer’s risk is spread across a group of policyholders.
  • Plans usually require at least 70% participation in the plan to be valid.
  • Premiums are split between the organization and its members, and coverage may be extended to members’ family and/or other dependents for an extra cost.

Pros and Cons of Having of Group Life Insurance

The biggest appeal group life insurance has for employees is its value for money. Group members typically pay very little, if anything at all. Any premiums are drawn directly from their weekly or monthly gross earnings. Qualifying for group policies is easy, with coverage guaranteed to all group members. Unlike with individual policies, group insurance doesn’t require a medical exam.

However, low cost and convenience aren’t everything. Group life insurance generally comes with only basic coverage, which means it may not fulfill the needs of policyholders. Typical amounts are $20,000, $50,000, or one or two times the insured’s annual salary. That’s why experts say it should be treated as a perk and supplemented with a separate individual policy, rather than being seen as sufficient standalone coverage.

Another drawback is that the employer controls the policy. If an organization opts to terminate group life insurance—or a person decides to switch jobs—coverage usually stops. However, the former employee does have an option to continue coverage at the individual level. This means the policy is converted from a group life policy to an individual one, which comes with higher premiums. While many people may not want the greater cost, those who are otherwise uninstallable will benefit from the conversion, as a medical exam still would not be required.

Benefits of a Group Health Insurance Plan

The primary advantage of a group plan is that it spreads risk across a pool of insured individuals. This benefits the group members by keeping premiums low, and insurers can better manage risk when they have a clearer idea of who they are covering. Insurers can exert even greater control over costs through health maintenance organizations (HMOs), in which providers contract with insurers to provide care to members. The HMO model tends to keep costs low, at the cost of restrictions on the flexibility of care afforded to individuals. Preferred provider organizations (PPOs) offer the patient greater choice of doctors and easier access to specialists but tend to charge higher premiums than HMOs.

The vast majority of group health insurance plans are employer-sponsored benefit plans. It is possible, however, to purchase group coverage through an association or other organizations. Examples of such plans include those offered by the American Association of Retired Persons (AARP), the Freelancers Union, and wholesale membership clubs.