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5. group __life___insurance






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5. group  __life___insurance 5. group __life___insurance Presentation Transcript

  • Learning outcomes
    After discussion, the student will be familiar with the following -
    Concept & definition of group insurance
    Group insurance products
    Rural & social sector insurance
    Social security insurance schemes
  • Group insurance
    Group is insured instead of individual
    One contract for many –group life selection
    Gives a sense of security & increased productivity being a service benefit
    Enables 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
  • Features
    Contract is between insurer & body representing individuals, employer or association.
    Can also be given to associations.
    Body is policyholder, individuals are beneficiaries
    Minimum 25 members required for formation of group scheme
  • Features
    Premiums are low because the group is insured under a single policy
    Effective 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 employee
    Premium not treated as perquisites for employees
    Evidence 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 employees
    Premiums are reduced further in case of favorable experience
    Low 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 group
    Individual lives not individually assessed for risks – health/hazards/morals etc
    Premium under group policy will change from year to year – exits/entry
    Premium 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 India
    One 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
  • GSLI
    Group 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
  • GSLI
    DAB 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 Scheme
    Governed 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
  • Benefits to employer-employee
    Amount of contribution is tax deductible business expense of employer
    Exact amount of funding as per convenience of employer within parameters of scheme
    Gratuity fund earns attractive interest
    Life 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 Schemes
    Designed 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 Scheme
    As 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 EDLI
    Employee’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 rebate
    Under 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 Insurance
    Mandatory 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 sector
    Social 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 line
    Obligations 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 schemes
    LALGI Scheme by LIC (1987-2000)
    JeevanMangal, an exclusive microinsurance product by LIC
    IDBI Fortis tie-up with RRDC, Orissa for microinsurance term products for poor
    SWAYAM SHAKTI SURAKSHA, a microinsurance scheme by Bajaj Allianz.