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A Detailed Guide On Group Term Insurance Policy Free Cover Limit
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A Detailed Guide On Group Term Insurance Policy Free Cover Limit

These days, companies are offering group term life insurance policies to their employees to boost up their morale and efficiency. Though group term insurance policies have several advantages, they still have some downsides.

A Detailed Guide On Group Term Insurance Policy Free Cover Limit

The group insurance policy for employees is reasonable, easy to obtain, and provides cover to a whole group under a single policy. Free cover limit or (FCL) is one of the prime features of a group term life insurance policy.

Let’s unravel some more details about the group term insurance plan.

What is a Group Term Insurance Policy?

A group term life insurance policy covers the employees for 1 year, as it is issued for one year by the employer. The employer has only the right to renew the policy every year. For group term insurance, the policy is issued under the name of the employer and the employer takes care of the administration of the policy. The employer deals directly with the insurance company for the addition and removal of employees from a particular group policy and the management process for the claims. The premiums for all employees are paid by the employer. The employer usually offers either flat or graded cover to employees. For instance, all the employees may receive a flat sum assured amount of Rs 5 lakh each or they may get a sum assured amount of Rs 5 lakh, 7 lakh, and 10 lakh according to their grades or designations. Under some scenarios, the sum assured is decided based on employees’ salaries. For instance, the coverage amount will be thrice the annual cost to the company (CTC) of the employee.

What is a Free Cover Limit?

The prime objective of a group life insurance plan is to cover a large group of people at minimum cost. If you want to enjoy group term life insurance benefits, then you must have adequate knowledge about the free cover limit (FCL).

Free cover

Free Cover Limit or FCL is a range of sum assured that employees are offered by their employers without any healthcare check-ups or medical tests. This is calculated after evaluating several factors (average age range,  total members under the group, growth rate, and health history) related to the group members. For example, the insurance provider offers an FCL of Rs. 50 lakh for a group of 1000 employees within 65 years.

How does the FCL procedure work?

FCL doesn’t imply you will get life insurance without any cost. This indicates if the member of the group has a sum assured that is lower than the FCL, then he/she will get life insurance without any underwriting requirement only if he is actively associated with the work. Employees, who are not regular at work and are below the FCL, will get life insurance once they resume work.

Employees who are above FCL will get group term life insurance benefits after some underwriting requisites. It may be their declaration of good health, questionnaire or healthcare check-ups. The insurance company will also recommend some age limits and above this limit, employees need to undergo some tests.

An employee with a sum assured that is beyond FCL may be asked to go for some healthcare tests. If he disagrees to perform those tests, then his life cover is plugged at the FCL.

If the employee performed some medical tests and the results are not favorable (suppose, he is diagnosed with a critical disease), then the proposal will be accepted based on underwriting and the severity of the medical condition. For group term insurance policy covers, the FCL sum assured is approved to all employees without taking any personal information from them.

Top-up plans

Sometimes employers offer add-on coverage to their employees once they are enrolled under a group life insurance plan. But this type of cover is optional and it is known as a top-up cover. FCL doesn’t offer any top-up plans to employees. The insurance company demands good health declarations, health questionnaires, or medical tests from employees under such scenarios.

If the sum assured exceeds the FCL and the insurance provider demands underwriting requirements, then the employee should reveal facts and obtain the cover. You can easily get group life insurance cover from your employer. But financial experts often advise purchasing an independent or individual term insurance plan rather than a group life insurance plan. It is because the former will protect your family members against all emergencies.

Top ups

Group insurance policy for employees is budget-friendly and you can conveniently get it. But these policy plans are related to your employment. Once you leave the job, you won’t get any group term life insurance benefits. On the other hand, if you purchase an individual term plan, you may need to pay exactly the same premium throughout the policy tenure. But for a group term policy, your premium will change annually at the time of renewal. Your premium for a group policy depends on the mortality basis of the insurer.

Benefits of a Group Term Insurance Plan to Employees-

Let us now discover the benefits of a group insurance policy for employees one-by-one:

  •       A group term plan also takes care of the extended family members in case of ill-fated incidents like their demise, critical illness, etc
  •       The premiums paid by their employers are not treated as a privilege
  •       Employees can avail of death benefits that are exempted from tax under Section 10(10D)
  •       Simple documentation process
  •       Can be customized to satisfy the needs of employees
  •       Protects the insured policyholder’s financial interest


The Bottom Line

After the gruesome effect of the COVID-19 pandemic, premiums of group term life insurance are rising and insurance companies have become conformist when the FCL rates are quoted. Thus, it is always recommended to purchase a separate term insurance plan for yourself that will strengthen the financial portfolio of your family.

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