5. group __life___insurancePresentation Transcript
GROUP LIFE INSURANCE
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 expertise
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 JANA SHREE BIMA YOJANA run by LIC AAM ADMI BIMA YOJANA run by LIC 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 GRAMEEN SURAKSHA by AVIVA SWAYAM SHAKTI SURAKSHA, a microinsurance scheme by Bajaj Allianz.