1.5 PLAN DE CONTINGENCIAS
1.5.5 Plan Operativo
of public and private employees, associations of professionals such as lawyers, doctors, accountants, teachers, unit holders,veteran associations, religious groups, retail chains etc.
Group Insurance Schemes
The two main types of group insurance are group life insurance and group accident and sickness insurance. The group life insurance allows the members to name the beneficiaries of their choice. The employee/member has a special privilege to convert the policy on termination from the group. This can be highly beneficial, especially for an uninsurable person. Group accident and sickness policy have different
components. And the technicalities differ from company to company.
Let us now discuss the various schemes available to an employer.
Group life insurance
Three types of group life insurance are common in India – the group term insurance scheme, group gratuity scheme and group superannuation scheme. Group life insurance is the most common group insurance provided to employees. Group life insurance is a simple and economic way of providing life insurance to employees. Under this policy, generally a fixed sum is paid to the dependants of a covered employee on his death. It is also possible to offer what is known as graded cover that offers different covers to different categories of employees within the same group.
This scheme is renewable every year. As the premium rates are very low when compared to individual insurance, the employees and the weaker sections find it convenient and helpful. It helps their dependents in reducing debt burdens.
Definition: Group life insurance is that form of life insurance covering not less than
25 employees with or without medical examination, underwritten under a policy
issued to the employer, the premium on which is to be paid by the employer or by the employer and employees jointly and insuring all of his
employees or all of any class or classes thereof determined by conditions pertaining to the employment for amounts
of insurance based on some plan which will preclude individual selection.
Where the
group is small, say less than 100, the insurer may insist on 100%
participation of
employees in the scheme, if the scheme involves contribution from employees also.
For very large groups however, the insurer generally accepts the scheme if 75% of
the employees participate.
Group gratuity scheme
The group gratuity scheme is an insurance scheme covering the employer’s liability to
pay gratuity under the Payment of Gratuity Act, 1972. The amount of gratuity to be paid
is at the rate of 15 days wages based on the wages last drawn, for each completed
year of service. However this is subject to a maximum limit. The Act requires that the
gratuity be paid to those employees who have served the employer continuously for
at least five years.
Group superannuation scheme
After retirement, employees need financial security. The provident fund and the gratuity
provided by the employer may not be sufficient in an inflationary economy. Secondly
such lump sum payments are often utilised by the employees to meet their current
contingent liabilities. The employers observed that the employees actually also need
a periodical payment over and above the normal terminal benefits. Such payment is
made in the form of pensions by creating a superannuation fund.
Superannuation
scheme aims at providing old age pensions to employees after retirement.
Group insurance scheme in lieu of EDLI
Group insurance scheme in lieu of ELDI is also a type of group insurance scheme
offered by life insurance. All employers who come under the Employee’s Provident
Fund and Miscellaneous Provision Act 1952, have a statutory liability to subscribe to
the Employee’s Deposit Linked Insurance Scheme, 1976, to provide for the benefit of
life insurance to all their employees. Under the scheme in effect from 24th June, 2000,
the insurance benefit is equal to the average balance to the credit of the deceased
employee in the provident fund during the last 12 months, provided that where such
balance exceeds Rs. 35,000, insurance cover would be equal to Rs.35,000 plus 25%
of the amount in excess of Rs.35,000, subject to a maximum of Rs.60,000. Hence if
the length of service is inadequate and /or the salary is low, the benefit to the family
of the employee in the event of his death would be meagre.
Where the employer provides for a better insurance benefit through an alternative
insurance plan, he may be exempted from participating in this scheme.
LIC’s group
insurance scheme in lieu of EDLI has been recognised as one such scheme.
Benefits to the employer
1. The premium payable by the employer in general is lesser than the total
contribution, which has to be made under the EDLI scheme, especially when
the salary level of the employees is high and the average age of the employee
group is low.
2. Settlement of claim for this scheme is quicker; the insurer just asks for the death
certificate and the claim form from the employer.
3. The premium paid by the employer is admissible as normal business expenses
for income tax purposes.
Benefits to the employee
1. The coverage offered by LIC scheme is higher than that offered under EDLI
scheme by the Provident Fund authorities.
Group savings linked insurance scheme
Group savings linked insurance scheme is a group insurance scheme, which is very
popular since it offers a survival benefit in addition to the death benefit available under
a group term assurance policy.
Where life insurance benefits are not linked to any statutory requirement, there is
often a demand to link it with a survival benefit, particularly when the employees come
forward to make contributions. The central government employee’s group insurance
scheme is an example of such a combination.
This scheme was introduced with the objective of providing, low cost insurance on a
wholly contributory and self-financing basis, with a survival benefit to help the families
of the government employees in the event of death of the employees while in service,
and a lump sum payment to the employees on cessation of employment.
Insurance companies now offer a similar scheme, which was originally formulated
to suit the requirements of large public sector organisations like BHEL, HHAL, HMT,
LIC, GIC, etc. The scheme has since been extended to reputed private companies
and educational institutions.
The group savings linked insurance scheme can be a contributory or non-contributory
scheme. Part of the premium collected is the savings premium that is accumulated at the
rate declared from time to time; a part is utilised to provide life cover in case of death.
Main features:
The employer acts as a facilitator and coordinator in maintaining the scheme and
in making monthly deductions from salary.
Contribution consists of risk premium and the savings portion. The savings portion
earns interest at the declared rate, compounding yearly.
As per regulations, the life cover premium and contribution for savings should be
in the ratio 1:2 respectively.
Employees are grouped into several agreed categories based on their salary and
therefore the contribution and coverage depend on the category to which the
employee belongs.
Benefits
1. In the event of death of the employee, the nominee gets an assured sum with
accumulated savings and interest on the same.
2. On retirement/resignation/termination, only the accumulated savings portion
with interest is payable. Monthly contribution of employees is exempted under
Section 88, of IT Act, 1961.
Requirements
The number of members joining the scheme has to be atleast 75% of the total number
of employees. The scheme has to be made compulsory for all the new employees.
The premium payable is based on weighted mean of the ages of the members.
Contribution is uniform for each category.
Group Annuity Scheme
Employers who have a privately administered Superannuation Fund, where moneys are
invested by Trustees as per Income Tax Rules can purchase pensions for employees
as and when due under ‘Group Annuity policies from LIC.’
Group Leave Encashment Scheme
According to Accounting Standard (AS-15) of January, 1995 and amended Section 209
(3) of the Companies Act, 1956, it has become necessary for employers to provide for
the liability of leave encashment facility available to employees in the annual books of
accounts. The Group Leave Encashment Scheme (GLES) is designed to fund such
liabilities of employers.
Group Mortgage Redemption Assurance Scheme
This scheme covers the borrowers of Housing/Vehicle Loans from financial institutions
where loans are recovered in EMI. Insurance cover allowed to borrower upto the
outstanding loan excluding the EMI interest, subject to conditions applicable to the
scheme.
Group Social security schemes
In many developed countries, insurance coverage either under individual plans or
under group insurance is not available to persons belonging to the weaker sections
of the community who are engaged in various occupations in the unorganized sector.
For such people, social insurance is the only answer for providing a certain minimum
of insurance cover. Therefore social security insurance is the growing concern of many
nations. In most of the developed countries, insurers actively participate in social
welfare measures. In our country also, insurance companies provide protection to
weaker sections under group term insurance policy. The poorer section groups include
handloom workers, rickshaw pullers, rural artisans, landless agricultural labourers,
barbers, tailors co-operative milk producers etc. In the event of death of the member,
a fixed sum is paid to the dependents. In case of an accident, the dependents can
get double the sum.
Group Disability Income Insurance
Workers compensation provided to employees in the event of work-related disability is
often inadequate. These benefits also fail to cover disability due to accidents that are not
work- related.
The group disability income insurance available in most of the foreign countries
(but not in India) provides economic security to the employees in the event of
disability. Group disability income insurance is of two types - short term plans and
long-term plans.
Case study
‘Annapoorna oils’ was a fast growing company started three years ago, engaged in
the manufacture of edible oils. Although a relatively new company, it already had a
market share of 10% in its home state, Andhra Pradesh. The wage agreement with the
employee’s union, which was for three years had ended, and the union had submitted
a charter of demands. The union, taking note of the high profits the company had been
generating in the last two years, wanted a 25% wage increase across the board for
all employees. The management was more or less inclined to agree.
However there
were no demands for any employee welfare insurance schemes from the union.
At this point of time the group insurance manager, LIC, was making a routine business
call for introducing group schemes in the company.
Question: If you were the group insurance manager what suggestions would you
give to the company management at this point of time?