Group Term Insurance
One master policy, many lives, renewed every year. Here is how it works and how the insurer books it.
Group term insurance covers many people under one master policy. The policy is a contract between the insurer and a master policyholder, usually an employer, and it pays a death benefit if a covered member dies during the term. There is no maturity or savings value: it is pure protection.
For IC-26, group term is interesting because it is accounted for differently from individual policies. It is typically renewed every year, so the insurer reserves for it on an unexpired risk basis rather than with a long-term valuation, and IRDAI's product rules on group pricing and profit sharing shape what flows through the accounts.
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How a Group Term Scheme Works
General features from actuarial material on group life pricing (Bastien) and insurer descriptions. Individual schemes vary.
- check_circleOne master contract between the insurer and the plan sponsor. Members may receive certificates of insurance outlining their cover.
- check_circleThe most common group is the employees of a single employer. Others include employees of several employers, professional associations and labour unions.
- check_circleEmployer-employee group cover is typically one-year renewable term with a fixed death benefit, renewing each year without fresh evidence of health.
- check_circleCover is given without individual evidence of insurability, within limits. In debtor-creditor groups the creditor is the beneficiary and some evidence is usually required.
- check_circleCover may be uniform for all members or vary by salary or position, and usually ends when a member leaves the employer or group.
- check_circleGroup insurance is cheaper to run: lower commission and acquisition costs, no individual underwriting, a single contract and payroll collection of premium.
IRDAI Rules on Group Products
From IRDAI's Master Circular on Life Insurance Products (12 June 2024).
Classification
What it says
Every product document states whether it is Individual or Group, alongside par/non-par and linked/non-linked
Para
8.4
Minimum policy term
What it says
Group term, group credit life, individual pure risk and micro insurance products may have terms as short as one month
Para
22.3
Level premium
What it says
Individual premiums must stay level over the paying term; group products are excepted
Para
12
Employer-employee groups
What it says
May be offered group term, one-year renewable group term, single premium group term, group credit life, group fund based, group annuity, group health, micro insurance and government schemes
Para
31.1
Non-employer-employee groups
What it says
Group term (including one-year renewable), group credit life, micro insurance and government schemes, among others, for homogeneous groups such as professional associations, cooperatives and parents of students
Para
31.2, 31.3
Discounts and loadings
What it says
Must follow objective criteria in the product filing, not insurer discretion; each capped at 30% of the approved premium in total
Para
7.13.3
Surrender of a group policy
What it says
For other than group fund based policies, members get the option to continue as individual policies
Para
31.11
| Rule | What it says | Para |
|---|---|---|
| Classification | Every product document states whether it is Individual or Group, alongside par/non-par and linked/non-linked | 8.4 |
| Minimum policy term | Group term, group credit life, individual pure risk and micro insurance products may have terms as short as one month | 22.3 |
| Level premium | Individual premiums must stay level over the paying term; group products are excepted | 12 |
| Employer-employee groups | May be offered group term, one-year renewable group term, single premium group term, group credit life, group fund based, group annuity, group health, micro insurance and government schemes | 31.1 |
| Non-employer-employee groups | Group term (including one-year renewable), group credit life, micro insurance and government schemes, among others, for homogeneous groups such as professional associations, cooperatives and parents of students | 31.2, 31.3 |
| Discounts and loadings | Must follow objective criteria in the product filing, not insurer discretion; each capped at 30% of the approved premium in total | 7.13.3 |
| Surrender of a group policy | For other than group fund based policies, members get the option to continue as individual policies | 31.11 |
Profit Sharing Under Group Schemes
Experience refunds affect the scheme's result, so IRDAI limits them (master circular para 7.13.4).
| Condition | Rule |
|---|---|
| Minimum experience | At least 1,000 life years under the master policy; below that, profit sharing waits until 1,000 life years are reached cumulatively |
| Basis | Scheme year only |
| Carry forward of losses | Decided by the Appointed Actuary |
| Maximum share | 75% if the scheme has under one lakh life years; 90% at one lakh life years or more |
| Mortality assumption | Not lighter than 60% of the prescribed standard mortality table rates |
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How Group Term Business Is Accounted For
Each row names its source. Insurer policies are that insurer's wording.
Liability for one-year renewable group term
Treatment
The unearned risk premium under all such policies, for the period up to each policy's next annual renewal date
Source
LIC accounting policy
Same, other insurer wording
Treatment
One-year renewable group protection is reserved on the unexpired risk premium basis; other group protection uses a gross premium valuation
Source
HDFC Life accounting policy
Group non-linked savings products
Treatment
The higher of policy account balances (with accrued interest or bonus) and the gross premium valuation reserve
Source
HDFC Life accounting policy
Segment reporting
Treatment
Group term sits inside the non-par segment, e.g. "Non Participating Life (Individual and Group)"
Source
LIC and SBI Life segment disclosures
Controlled fund disclosure
Treatment
Group Assurance appears under both the Non-participating and the Linked policyholders' funds
Source
IRDAI AFI master circular, Annexure X
KYC
Treatment
Collected on the master policyholder (the legal entity) and its beneficial owners; the master policyholder keeps member details and gives them to the insurer when required
Source
IRDAI AML/CFT master guidelines, para 8.1.8
| Item | Treatment | Source |
|---|---|---|
| Liability for one-year renewable group term | The unearned risk premium under all such policies, for the period up to each policy's next annual renewal date | LIC accounting policy |
| Same, other insurer wording | One-year renewable group protection is reserved on the unexpired risk premium basis; other group protection uses a gross premium valuation | HDFC Life accounting policy |
| Group non-linked savings products | The higher of policy account balances (with accrued interest or bonus) and the gross premium valuation reserve | HDFC Life accounting policy |
| Segment reporting | Group term sits inside the non-par segment, e.g. "Non Participating Life (Individual and Group)" | LIC and SBI Life segment disclosures |
| Controlled fund disclosure | Group Assurance appears under both the Non-participating and the Linked policyholders' funds | IRDAI AFI master circular, Annexure X |
| KYC | Collected on the master policyholder (the legal entity) and its beneficial owners; the master policyholder keeps member details and gives them to the insurer when required | IRDAI AML/CFT master guidelines, para 8.1.8 |
Why Unexpired Risk, Not a Long-Term Reserve
A one-year renewable group term policy has no cash value per employee and needs no policy-by-policy (seriatim) valuation, as group pricing material notes. The insurer's only open obligation at the year end is the cover still to run until renewal, so the reserve is the part of the premium that relates to that unexpired period.
Exam Traps
Employer-employee group term is one-year renewable, not five-year. In a debtor-creditor group, the creditor is the beneficiary. Profit sharing needs 1,000 life years and caps at 75% or 90%, not 100%. Discounts and loadings are each capped at 30%. The one-year renewable group term reserve is unearned or unexpired risk premium, not a gross premium valuation. The level-premium rule applies to individual products, not group ones.
FAQs
What is group term life insurance?expand_more
Pure life cover for a group of people under one master policy, usually held by an employer for its employees. It pays a death benefit if a member dies while covered and has no maturity value.
Who is the policyholder in group term insurance?expand_more
The master policyholder, generally the employer or a trustee. Members are covered under the master policy and may receive certificates of insurance.
How is group term insurance different from individual term insurance?expand_more
One contract covers many lives, cover is usually given without individual medical evidence within limits, it typically renews every year, and premium need not be level. Cover usually ends when a member leaves the group.
What happens if the employer surrenders the group policy?expand_more
For group policies other than fund based ones, IRDAI's master circular says members must be given the option to continue the cover as individual policies.
How does an insurer reserve for group term business?expand_more
For one-year renewable group term, by the unexpired (unearned) risk premium up to the next renewal date. LIC and HDFC Life both describe it this way in their accounting policies.
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