Do you need to supplement your corporate term life cover with an individual policy?

Some employees in the private sector get a group term life cover as part of their salary package. It is a nice perk; however, you need to figure out if it is sufficient for your financial needs. 

What’s group term insurance? 

It provides life cover to employees of an organization and financially protects their respective families.

Here, the employer pays the premium and in case of death of an employee, the sum assured is paid to the employer, who in turn, settles the account with the beneficiary of the insured member.

The policy term is for a period of one year and is renewed every year. While some companies offer uniform covers to all their employees, others give ranked covers for various grades of their employees. Riders such as critical illness benefits, accident/disability benefits may or may not be part of it. 

Corporate term life cover however has the following limitations:

Standard cover

Usually, the company provides a standard cover to its employees regardless of their financial situation.

The extent of life cover one needs is a function of one’s age, financial position, number of dependents in the family, the extent of indebtedness and related factors. 

While group term cover might be sufficient for those who are single or working spouses without children or dependents, it’s highly likely that the rest would require more cover than that is offered. 

Portability issue

Having a cover tied to your employer makes you wedded to the organization. And if you quit, you lose all the cover. 

While group cover offers portability, it is often at a high cost.

A lot depends on your age and health at that juncture. For instance, moving to a new insurer in the 40s or 50s could jack up your premium and if you have any health complications, it’s likely to get even more expensive or even rejected. 

Losing tax advantages 

Since the premium is paid by the employer, they treat it as an expense for their tax purposes. It is also not considered a perk and added to your income. Also, the compensation paid to family members on the death of the insured is exempt from tax liabilities. 

The flip side is that since the employee does not pay the premium, he is not entitled to any tax benefits under Sec 80 C of the IT Act. 

What should you do?

First of all, you need to assess life cover needs. Estimate how much annual income your dependents might require without compromising their lifestyle and for how many years. You need more years of income if you have small children than if they were teenagers. 

If your teenage children have 10 years to go before they approach the job market, then you need to provide financial cushioning worth at least 10 years of your family income. Large families with special-needs dependents and non-working spouses need a tad more than usual. 

Once, you have assessed your life cover needs; supplement your corporate life cover with that of individual life cover to make up for the difference. 

Takeaway