Protecting the financial future of your near and dear ones when you are not around or there is a sudden income loss can be ensured with a life insurance plan. But life insurance can seem to be confusing with the variety of policy categories, which are offered by different insurance providers.
You may have to select between an individual policy, term insurance, money back plan, group life insurance, and many more. One common decision that you might find difficult to make is deciding between an individual insurance plan or a group plan.
Before deciding between group life and individual life insurance plans, it is important to understand both these kinds of policies and they will be beneficial for you.
Individual Life Insurance Policy
An individual policy only covers you and will continue till the time of your retirement, or even sometimes later. Whenever you avail the life insurance policy first, the insurance provider will levy a particular amount of premium depending on a few factors. These factors include profession, age, the sum assured, health conditions, and many others.
For a traditional individual plan, the insurance premium remains constant within the tenure of the plan. This means that in case you even have to make payment of a slightly higher insurance premium, the coverage will not decrease when you grow older.
Hence, it is suggested that you purchase an individual insurance policy at a young age, this will considerably reduce the insurance premium you have to pay for a higher amount of coverage. Additionally, the risk to not be eligible for a plan when you’re older is more. This is the reason why you should buy a life insurance policy at a young age.
Group Life Insurance Policy
A group plan is provided by the companies as an additional perk for their employees. Unlike the individual insurance policy, the owner of the group plan is your employer. However, you should keep in mind that the coverage offered on a group policy is available only when you are employed.
But such an insurance cover is available only till the time you are working with your current employer. Additionally, the group policy might be canceled at any time either by your insurance company or by your employer.
The insurance premium charged on a group life cover may usually be lower as opposed to the individual plan. But in most of the cases, the premium amount increases after a particular age that is usually every 5 years. This generally means that the insurance premium paid for the group cover increases when you age with time.
Let us now see how both of these plans vary on different parameters and decide which one has an upper hand on the other.
Pricing
Group life insurance plans cover a huge number of people and provide the same benefits according to the terms & conditions as determined by the employer or the company. Typically, group plans are more economical as opposed to individual plans. A little amount is deducted from your income and used towards the insurance policy. On the contrary, a life insurance plan that you have purchased may be more expensive; however, it is customized according to your requirements and may include some additional benefits. The younger you are while buying an individual plan, the lower would be your premium amount.
No Claim Bonus
A group insurance policy will not provide you with the benefit of a claim-free year. In case you have not made any claim within the tenure of the life insurance plan bought by you, you will become eligible for the enhanced coverage and renewal at a discounted premium. The plans sponsored by the employer do not include such benefits.
Flexibility
An individual life plan provides you with the freedom of choosing the amount of protection you need according to your personal, financial, and health requirements and make payment of the premium accordingly. The terms & conditions of a life insurance plan purchased for the employees of a company are standardized and might not be suitable for everyone’s requirements.
Applicability
Once you have purchased an individual life cover plan, it is always applicable. With this plan, you get a guaranteed coverage till the time you keep paying your insurance premiums. However, in the case of group life insurance plans, the continuation of the policy is based on the organization you work in since the plan is issued in its name and the insurance premiums are paid by it. In case your employer is facing a capital crunch, they might no longer be capable of providing benefits like a life insurance plan. Moreover, in case the company lays off its employees or the employees themselves wish to change their jobs, this can lead to losing their life insurance plan.
Premium
When you purchase a simple individual life insurance plan, the insurance premium continues to be constant during the whole duration. On the contrary, the insurance premium on a group life insurance policy may rise proportionately as you become older.
Continuity
Till the time you make payment of the insurance renewal premium timely on the individual plan, the cover will continue. Comparatively, coverage under a group insurance plan stops when you quit the job or lose it. Some group plans offer an option for portability; however, there might be many exclusions and restrictions and you might also have to make payment of the higher premium amount for such kind of portability.
Coverage
The coverage amount under a group policy is limited according to the terms & conditions as your employer determines. But there isn’t any limitation on the life coverage amount, which you might avail of under the individual policy. In most of the cases, the coverage in group policy is not enough for covering any extreme condition. This type of limitation is not applicable whenever you go for an individual life policy.
Cancelation
The individual life insurance policy cannot be canceled by the insurer. The only time when your coverage will become unavailable is when you don’t make payment of the insurance premium on time. On the contrary, a group life insurance plan might be canceled by either the issuing insurance provider or the employer. Hence, there is a higher chance of uncertainty of cover under the group policy.
Cash Value
Group policies usually do not involve equity in terms of cash value. Based on the kind of individual life coverage policy owned, you might have the potential for building cash value. Permanent life insurance like whole life and universal life has the potential of building considerable cash value. You can access the cash value via withdrawals and loans, for the emergency or any other things you have in the head.
Portability
With a group life plan, you do not own your plan. In case you were planning to resign or get terminated from the organization, group life insurance may not be with you. After the employment gets terminated, usually the insurance gets terminated with it.
Conclusion:
A life insurance policy is a powerful way of financially securing your family. It is advised that you purchase the insurance policy, which is following the personal requirements, instead of having a one-size-fits-all plan. Having an individual life plan later in your life can prove expensive for the employee. Hence, even if your organization offers life insurance, it is important to obtain a plan for yourself.
