Group Insurance
Group insurance is a single insurance contract issued to an employer, association, or institutional body covering a defined group of individuals — typically employees — under a master policy, with individual members receiving certificates of coverage rather than separate policies, and the premium typically subsidised or fully funded by the sponsoring organisation.
Group insurance in India encompassed several product lines, the most prevalent being Group Term Life (GTL) insurance and Group Health Insurance. Employers were the most common policyholders, taking out group policies to provide their workforce with life and health coverage as part of the employment benefits package. The master policy was held by the employer or group administrator, and individual employees received certificates evidencing their coverage amount and benefit terms.
Group Term Life insurance provided a death benefit to the nominee of any employee who died during the policy year. Coverage amounts were typically structured as a multiple of annual salary — one to three times the annual cost to company (CTC) was common in the Indian corporate sector. The premium was calculated on the group's aggregate sum assured, age profile, and claims experience history. Unlike individual term policies, GTL did not require individual medical underwriting for employees joining at the time of inception; free cover limits defined the maximum sum assured up to which automatic coverage was granted without medical tests.
Group Health Insurance (also referred to as group mediclaim) covered hospitalisation and treatment expenses for employees and often their dependents. IRDAI-regulated group health policies covered pre-existing diseases typically from day one or after a short waiting period, which was a significant advantage over individual health policies that excluded pre-existing conditions for two to four years. The cashless facility at network hospitals was a key benefit, allowing employees to access treatment without out-of-pocket payment upfront.
The premium economics of group insurance were favourable compared to individual policies due to pooling of risk across a large group. For a corporate with 500 employees, the average risk characteristics of the group reduced adverse selection risk for the insurer, allowing lower per-head premiums. However, small groups of under 50 lives were subject to greater pricing volatility and insurers applied higher loading factors. Claims experience played a crucial role in renewal pricing — groups with high claims in a given year faced significant premium increases at renewal, occasionally causing employers to switch insurers.
Tax treatment under Section 17(2) of the Income Tax Act treated employer-paid group health insurance premiums as a perquisite exempt from income tax in the hands of employees, subject to conditions under Rule 3(7)(ii). Group term life premiums paid by the employer were treated as a tax-deductible business expense for the employer. Employees covered under a group policy could still purchase individual health or life policies for broader coverage and claim Section 80D or 80C benefits on individually paid premiums.
Portability was a limitation of group insurance. An employee who resigned or retired lost coverage under the employer's group policy. IRDAI portability regulations allowed employees to convert their group health cover to an individual policy with the same insurer without fresh underwriting within a defined period of leaving employment, preserving continuity of pre-existing condition cover — an important provision for employees with chronic health conditions who might otherwise face exclusions if they obtained a fresh individual policy.