GROUP LIFE INSURANCE

Learning outcomes After discussion, the student will be

familiar with the following -Concept & definition of group insuranceGroup insurance products Rural & social sector insurance Social security insurance schemes

Group insuranceGroup is insured instead of individual One contract for many –group life

selection Gives a sense of security & increased

productivity being a service benefitEnables employers to ensure payment of

an adequate & pre-determined sum to family of employee in case of death

Only one MASTER policy issued to employer

FeaturesContract is between insurer & body

representing individuals, employer or association.

Can also be given to associations.Body is policyholder, individuals are

beneficiariesMinimum 25 members required for

formation of group scheme

Features Premiums are low because the group is

insured under a single policyEffective cost for employer reduced as

premium is treated as a deductible expense in his income tax purpose

Exact premium depends on several factors like nature of business of employer, working conditions, class of employees, age distribution

“Safer the job lower the premium ”

Contd….Premium generally paid by employer or

shared partially with employeePremium not treated as perquisites for

employeesEvidence of insurability is employer’s

certificate about employees’ health, leave on medical grounds.

Age proof is service record

Contd….Employer has to inform insurer regarding

new entrants & exits among employeesPremiums are reduced further in case of

favorable experienceLow cost of administration, no medical

report, must have a central administrative machinery, minimum size required for group scheme

Contd….Most important requirement is that group

must not have been formed for the purpose of taking advantage of GI scheme. Group must have some other bonding.Entry/exit must be for reasons other than availability of cover under this scheme

Individual beneficiary cannot choose the amount of insurance cover

Inclusion of members in the scheme is a matter over which members have no choice

Contd….Everybody fulfilling specified criteria will

compulsorily join the groupIndividual lives not individually assessed

for risks – health/hazards/morals etcPremium under group policy will change

from year to year – exits/entryPremium may also change due to

mortality experience of group – favourable –lower rate

Contd…..Larger number people can be reached Government use these schemes as

instruments of social welfare, social security being a concern globally

Started in India in early 60’s

Group Schemes in IndiaOne Year Renewable Group Term Insurance Helpful to employees who die young & find

gratuity/PF amounts grossly inadequate Helpful to cover liabilities under mortgage/

hire-purchase agreements Amount of cover can be related to o/s loan Date of birth, date of joining scheme, salary

(basic & DA), retirement age required for entry to scheme

GSLIGroup Savings - Linked Insurance scheme Contributions from employees solely. Consists of 2 elements – part premium

towards term insurance cover & balance towards a savings scheme

Amount of cover increases with employees’ income & size of group

Savings amount returned in case of exit

GSLIDAB cover allowed Employee for tax rebate on premium

Claims disbursed by employer Employee should not have been ill at

d.o.c Differential cover for different categories

Group Gratuity SchemeGoverned by Payment of Gratuity Act, 1972 A statutory liability of employer -

increases as years pass & wage bill increases.

Easier for employer to fund gratuity liability with insurer.

Actuarial advice available from insurer regarding adequacy of funds

In absence of arrangement , 3 ways to pay gratuity.

Contd….. Employer can pay as & when gratuity

due Difficult because gratuity payable varies

from year to year- causes fluctuations in profits/ delays or defaults in payments

Employer could create internal reserve for gratuity liabilities – funds diverted for other current requirements

Set up a trust to administer – may lack expertise

Benefits to employer-employeeAmount of contribution is tax deductible

business expense of employerExact amount of funding as per convenience

of employer within parameters of schemeGratuity fund earns attractive interestLife insurance company does , freely, annual

valuation of employer’s gratuity liability Separate funding of gratuity liability

ensures that gratuity payout does not create any problems in financial management of co.

Benefits…..Administrative responsibility taken over by

insurance company which provides detailed annual statement regarding interest accrued, fund balance, claims paid.

Group Superannuation SchemesDesigned to provide pension to employees

on retirement from service May be fully financed by employer or

jointly by both Tax concessions available towards

premium paid and income earned from such fund

Insurer administers & makes available actuarial and investment expertise

Defined contribution /defined benefit

VRS Insurance company devises suitable

schemes for payment of VRS benefits in the form of annuity payments till normal date of retirement

Annuity payments depend upon last salary drawn & service of employee

Consideration to be paid by employer in lumpsum & annuity payments start from date of VR to date of normal retirement

Group Leave Encashment SchemeAs per amendments of Companies Act, in

1988, employers are to fund liability towards leave encashment ( including medical leave encashment ).

Scheme can also include life cover

Group Insurance in lieu of EDLIEmployee’s Deposit Linked Insurance (EDLI)

applicable to all establishments & undertakings contributing towards PF under EPF Act, 1952 & commenced in 1976

Scheme provides life cover to an employee linked to his balance in PF account subject to a max limit of Rs 60,000

CPFC can exempt employer from EDLI if he opts for a GI in lieu of EDLI.

Contd….Many life companies provide GI in lieu of

EDLI which are statutorily accepted alternate schemes.

Premiums lower with higher insurance benefits

Premium gets tax rebateUnder EDLI scheme, in case of death , LA

gets PF accumulation equivalent as claim.Life Insurance companies give Rs 5000-

200,000 as claim – not connected to PF.Hassle-free settlement

Rural /Social sector InsuranceMandatory for each insurer to

undertake certain percentage of life insurance business in rural or social sector

Rural sector As per census, any area where

population is less than 5000 Density of population is less than 400/sq

km More than 25% male working population

engaged in agricultural pursuits

Obligations of insurers In rural sector 7% of total policies written in first FY 9% …………………………………………second

FY 12% ………………………………………..third

FY 14%................................................fourth FY 16%................................................fifth FY

Social sectorSocial sector includes Unorganised sector - self employed workers

like agricultural labourers, carpenters, fishermen, handloom & khadi workers, tannery workers, primary milk producers, vegetable vendors, tailors, washermen…..

Informal sector - Small scale self employed workers at a low level of organisation with primary objective of generating employment and income like repair & maintenance , transport, construction, manufacturers.

Social sector obligations Economically vulnerable & backward

classes - those living poverty lineObligations are – 5000 lives in first FY 7500 lives in second FY 10,000 lives in third FY 15,000 lives in fourth FY 20,000 lives in fifth FY

Social security schemesJANA SHREE BIMA YOJANA run by LICAAM ADMI BIMA YOJANA run by LICLALGI Scheme by LIC (1987-2000)Jeevan Mangal, an exclusive microinsurance

product by LICIDBI Fortis tie-up with RRDC, Orissa for

microinsurance term products for poorGRAMEEN SURAKSHA by AVIVASWAYAM SHAKTI SURAKSHA, a

microinsurance scheme by Bajaj Allianz.

THANK YOU