top of page

Group insurance

Group Insurance Covers a Defined Group of People 

Group coverage can help reduce the problem of adverse selection by creating a pool of people eligible to purchase insurance who belong to the group for reasons other than the wish to buy insurance, which might be because they are a worse than average risk. Grouping individuals together allows insurance companies to give lower rates to companies, "Providing large volume of business to insurance companies gives us greater bargaining power for clients, resulting to cheaper group rates.

Group insurance may offer life insurance, health insurance, and/or some other types of personal insurance. Thus, we can infer the following characteristics of Group Life Insurance, which also apply to other group insurances:

a. there must be a group of people to be insured who have something in common other than the purpose of obtaining insurance

b. to save administrative costs, there is often a Master Policy Holder who will retain the documentation on behalf of the members, and may deal with the members on behalf of the insurer

c. Such covers are typically available at a discount to the respective individual rates, as administration and expected claims costs are lower.

Insurable Groups can broadly be classified as mainly two types - " employer - employee " groups where all members work for the employer proposing to cover them or "affinity" groups, whose members have a commonality other than employment - say deposit holders of a bank.

The Master Policy Holder of a Group Life Insurance Plan in the case of an "Employer Employee Group" is basically the Employer and for other groups would be the entity that has an insurable interest in the lives of its members. So, in the case of a bank it could be said to have an insurable interest in the lives of its members who hold a deposit or have taken a loan. The Master Policy Holder also ensures each member gets their certificate of coverage stating the details of the premium paid, cover available, term of the cover and the claims process.

A feature which is sometimes common in group insurance is that the premium cost on an individual basis is not individually risk-based. Instead it is the same amount for all the insured persons in the group. So, for example, in the United States and elsewhere, often all employees of an employer receiving health or life insurance coverage pay the same premium amount for the same coverage regardless of their age or other factors, even though the total group premium will be calculated by reference to the actual (or estimated) age distribution etc. of the group. In contrast, under private individual health or life insurance coverage in the U.S. and elsewhere, different insured persons will pay different premium amounts for the same coverage based on their age, location, pre-existing conditions, etc.

Group policies may be attractive to consumers because the average price per policy is often lower. Carriers are interested in gaining customers and will cut prices a bit to take account of their lower costs. Members who take up the insurance are generally eligible to renew coverage while they continue to be members of the group, subject to certain conditions. Again, using U.S. health coverage as an example, under group insurance a person will normally remain covered as long as he or she continues to work for a certain employer and pays the required insurance premiums, whereas under individual coverage, the insurance company often has the right not to renew an individual health insurance policy, for instance if the person's risk profile changes (though some states limit the insurance company's rights not to renew after the person has been under individual coverage with a given company for a certain number of years).

Group Life Insurance covers may be either compulsory – in which case no member can opt out of the insurance – or voluntary, where each eligible member may decide within a given time limit whether or not to be included in the Group Insurance. This is irrespective of who pays the premium.

bottom of page