Free cover limit: the group life detail that decides whether a claim is paid
Cover above the free limit is not automatic. It needs underwriting, and unfinished underwriting is a claim problem.
Group term life is usually issued without medical tests up to a threshold called the free cover limit. Above that threshold, individual underwriting applies.
Where it goes wrong
A senior employee joins with a sum assured above the free cover limit. The forms are never completed. Everyone assumes the full cover is in force. At claim stage the insurer pays only up to the free cover limit, and the family receives a fraction of what the offer letter described.
How to keep it clean
- Know the free cover limit for your scheme and where each employee sits against it
- Complete underwriting for anyone above it at joining, not at renewal
- Track pending cases as a live list, not as email
- Re-check after every salary revision, since the sum assured is usually a multiple of salary
Also worth checking
- Whether cover continues during long leave or notice period
- The suicide exclusion window in the first policy year
- Whether an exiting employee can convert to an individual policy
We keep the pending underwriting list as part of servicing the scheme, so it does not surface at a claim.