A PROJECT REPORT ON GROUP INSURANCE – A CASE STUDY
SUBMITTED BY NAIR SHARI SIVAN THIRD YEAR (BANKING & INSURANCE) (SEMESTER – VI) 2010 – 2011
MODEL COLLEGE DOMBIVLI
UNIVERSITY OF MUMBAI MARCH 2011
1
A PROJECT REPORT ON GROUP INSURANCE – A CASE STUDY
SUBMITTED TO THE UNIVERSITY OF MUMBAI IN PARTIAL FULFILLMENT FOR THE AWARD OF THE DEGREE OF BACHELOR OF COMMERCE (BANKING & INSURANCE) VI SEMESTER
BY NAIR SHARI SIVAN MODEL COLLEGE DOMBIVLI MARCH 2011
2
DECLARATION I, NAIR SHARI SIVAN, student of Bachelor Of Commerce (Banking & Insurance) VI Semester of Model College Dombivli (E), hereby declare that, I have completed this project on “GROUP INSURANCE – A CASE STUDY” for the academic year 2010 – 2011. The information submitted is true and original to the best of my knowledge.
NAIR SHARI SIVAN THIRD YEAR (BANKING & INSURANCE)
3
ACKNOWLEDGEMENT I would like to extend my sincere gratitude to all those people who have helped me in the successful completion of my project entitled “GROUP INSURANCE – A CASE STUDY” First and foremost I would like to thank my project guide MRS. GEETHA NAIR for being kind enough in sparing her time and energy from her busy schedule and helping me in collecting the necessary data. Also
I
owe
my
sincere
gratitude
to
LIFE
INSURANCE
CORPORATION OF INDIA, whose dynamism and positive approach gave an effective momentum to my project. I would also like to express my sincere thanks to our Principal, Dr. M. R. Nair for his constant moral support and vision. This project could not have been possible without the help of entire library department of our college. They made as much data, books, magazines etc. available as they can to facilitate the easy collection of information.
NAIR SHARI SIVAN
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TABLE OF CONTENTS SR.NO 1 2 3 4 5 6 7 8 9 10 11 12
DESCRIPTION CERTIFICATES DECLARATION ACKNOWLEDGEMENT TABLE OF CONTENTS LIST OF ABBREVIATIONS LIST OF DIAGRAMS CHAPTER I CHAPTER II CHAPTER III CHAPTER IV CHAPTER V BIBLIOGRAPHY
PAGE NO I II III IV V VI 1-4 5-8 9 - 23 24 - 47 48 -49 50
LIST OF ABBREVIATIONS LIC
:
Life Insurance Corporation of India
JBY
:
Janasree Bima Yojana 5
OYRGTA :
One Year Renewable Group Term Assurance Plan
GLES
:
Group Leave Encashment Scheme
EPS
:
Employees Pension Scheme
EPF
:
Employees Provident Fund
GPF
:
General Provident Fund
CPF
:
Contributory Provident Fund
PPF
:
Public Provident Fund
EDLIS
:
Employees Deposit Linked Insurance
Scheme
EPFO
:
Employees Provident Fund Organisation
FPS
:
Family Pension Scheme
PF
:
Pension Fund
EMI
:
Equated Monthly Installments
HIV
:
Human Immunodeficiency Virus
NGO
:
Non- Governmental Organisation
LIST OF DIAGRAMS
6
DIAGRAM
TOPICS
PAGE NO
NO 4.1
GROUP SCHEMES
24
4.2
SOCIAL SECURITY SCHEMES
25
7
8
CHA 9
10
11
12
CHAPTER 1 AN INTRODUCTION
Insurance can be defined as the process of reimbursing or protecting a person from contingent risk of losses through financial means, in return for relatively small, regular payments to the insuring body or insurance company. Insurance involves pooling funds from many insured entities (known as exposures) to pay for the losses that some may incur. The insured entities are therefore protected from risk for a fee, with the fee being dependent upon the frequency and severity of the event occurring. In order to be insurable, the risk insured against must meet certain characteristics in order to be an insurable risk. Insurance is a commercial enterprise and a major part of the financial services industry, but individual entities can also selfinsure through saving money for possible future losses. In the good olden days, the farming community used to live almost self sufficiently. In the hours of crisis the members helped each other. When the family head temporarily stayed back from farming operations owing to sickness, the other members of the family automatically took care of him. Industrialization has dramatically changed the way of life around the world. There was rapid growth growth in new industries and the existing industries looked to expand domestically and internationally. Industrial revolution brought
opportunities
as
well
as
threats.
The
immediate
advantages were development of new tools and technological 13
advancements, innovations in production methods, mechanization of activities, large scale operations, cost reductions, cost efficiency, creation of colossal employment opportunities, evolution of new knowledge and emergence of new professions. On the other hand, the concept of social security in the form of joint family system was slowly getting eroded. Self – dependence and self – sufficiency were lost when people started migrating from farms to factories. The concept of nuclear family took birth and people started feeling socially and economically insecure. In the process every member of the society was compelled to work to gain economic independence. Though, life insurance offers protection to the family in the event of the unfortunate death of the life assured, it is also true that majority of the population cannot afford to buy sufficient insurance cover. That’s where, group insurance steps in. Collection of people as a group, union, corporation or trade association brings out the “power of members” to bargain for a good price. Hence, group insurance extends insurance coverage at an affordable price to many. Even employers get encouraged to provide a welfare package through group insurance schemes to their employees.
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ABOUT THE REPORT:
1) TITLE OF THE STUDY: The present study is titled as – “A PROJECT REPORT ON GROUP INSURANCE – A CASE STUDY”. The study is made with special reference to “LIFE INSURANCE CORPORATION OF INDIA”.
2) OBJECTIVES OF THE STUDY:
i.
To study the benefits of group insurance to customer.
ii.
To study different schemes under group insurance.
iii.
To know the group insurance schemes provided by Life Insurance Corporation of India. To study the eligible groups for group insurance coverage.
iv.
3) LIMITATION OF THE STUDY: The present study suffers from all limitations of case study method.
4) DATA & METHODOLOGY :
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For the purpose of the present study, both primary and secondary data were used. Primary data collected from insurance company visit, interviewing staff etc. Secondary data collected for books, internets, etc.
5) CHAPTER LAYOUT : The present study is arranged as follows: a) Chapter 1: “AN INTRODUCTION” gives an introduction of title
and the report. b) Chapter 2: Gives profile of Life Insurance Corporation of
India. c) Chapter 3: Deals with Group Insurance – A Theoretical view.
d)
Chapter 4: Group Insurance – A Case Study.
e) Chapter 5: Summarizes the result of the study.
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CHAPTER – 2 LIFE INSURANCE CORPORATION OF INDIA – A PROFILE
The Life Insurance Corporation of India (LIC) is the largest stateowned life insurance company in India, and also the country's largest investor. It is fully owned by the Government of India. It also funds close to 24.6% of the Indian Government's expenses. It has assets estimated of 9.31 trillion (US$202.03 billion). It was founded in 1956 with the merger of more than 200 insurance companies and provident societies. Headquartered in Mumbai, financial and commercial capital of India, the Life Insurance Corporation of India currently has 8 zonal Offices and 101 divisional offices located in different parts of India, at least 2048 branches located in different cities and towns of India along with satellite Offices attached to about some 50 Branches, and has a network of around 1.2 million agents for soliciting life insurance business from the public. History: The Oriental Life Insurance Company, the first corporate entity in India offering life insurance coverage, was established in Calcutta in 1818 by Bipin Behari Dasgupta and others. Europeans in India were its primary target market, and it charged Indians heftier
17
premiums. The Bombay Mutual Life Assurance Society, formed in 1870, was the first native insurance provider. The first 150 years were marked mostly by turbulent economic conditions. It witnessed, India's First War of Independence, adverse effects of the World War I and World War II on the economy of India, and in between them the period of world wide economic crises triggered by the Great depression. The first half of the 20th century also saw a heightened struggle for India's independence. The aggregate effect of these events led to a high rate of bankruptcies and liquidation of life insurance companies in India. This had adversely affected the faith of the general public in the utility of obtaining life cover. The Life Insurance Act and the Provident Fund Act were passed in 1912, providing the first regulatory mechanisms in the Life Insurance industry. The Indian Insurance Companies Act of 1928 authorized the government to obtain statistical information from companies operating in both life and non-life insurance areas. The subsequent Insurance Act of 1938 brought stricter state control over an industry that had seen several financially unsound ventures fail. A bill was also introduced in the Legislative Assembly in 1944 to nationalize the insurance industry.
Nationalization: In 1955, parliamentarian Amol Barate raised the matter of insurance fraud by owners of private insurance companies. In the ensuing investigations, one of India's wealthiest businessmen, 18
Ram Kishan Dalmia, owner of the Times of India newspaper, was sent to prison for two years. Eventually, the Parliament of India passed the Life Insurance of India Act on 1956-06-19, and the Life Insurance Corporation of India was created on 1956-09-01, by consolidating the life insurance business of 245 private life insurers and other entities offering life insurance services. Nationalization of the life insurance business in India was a result of the Industrial Policy Resolution of 1956, which had created a policy framework for extending state control over at least seventeen sectors of the economy, including the life insurance.
Current status: Over its existence of around 50 years, Life Insurance Corporation of India, which commanded a monopoly of soliciting and selling life insurance in India, created huge surpluses, and contributed around 7 % of India's GDP in 2006. The Corporation, which started its business with around 300 offices, 5.6 million policies and a corpus of INR 459 million (US$ 92 million as per the 1959 exchange rate of roughly Rs. 5 for a US $, has grown to 25000 servicing around 180 million policies and a corpus of over 8 trillion (US$173.6 billion). The recent Economic Times Brand Equity Survey rated LIC as the No. 1 Service Brand of the Country. The slogan of LIC is "Zindagi ke saath bhi, Zindagi ke baad bhi" in hindi. In english it means "with life also, after life also.”
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Mission: "Explore and enhance the quality of life of people through financial security by providing products and services of aspired attributes with competitive returns, and by rendering resources for economic development." Vision: "A
trans-nationally
competitive
financial
conglomerate
of
significance to societies and Pride of India."
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CHAPTER 3 THEORETICAL VIEW
Industrial Revolution became major source for spreading earlier the concept of group insurance. Majority of the factories employed huge machineries, and working with them more often led to accidents resulting in injuries, disablements, and deaths. Hence, a need for social protection was felt by individuals who suffered from the occupational hazards and accidents. This need for providing variety of benefits on a cost effective scale gave a boost to group insurance. Low cost and liberal underwriting norms unlike those followed in the individual insurance led to phenomenal growth of the group insurance. Hence, those individuals who where denied individual insurance could get insurance protection on group basis. With the passage of time, different types of group insurance policies based on combination of benefits decided for employee by the employer and state emerged. Some of the benefits were payable on untimely death, while some benefits were payable on survival. Similar to the two basic plans in the Life Insurance i.e., term assurance and pure endowment, the Group Life Insurance and Group Superannuation Schemes can be combined in a multiple number of ways to form new schemes in order to meet growing demands.The concept of group insurance emerged and flourished in the western and developed countries, while it took a late start in India. Major developments were observed only after 21
independence, though in the initial years, the group insurance market was not amenable to this kind of benefit to employees. However, with gradual realization of importance of group insurance, and demands by trade unions, a sudden rise in business was noticed. Group insurance has almost become an indispensable part of the employee benefit package. Group insurance has indeed made great contribution to the society as could be seen from the following: •
Providing insurance facilitates to the small
enterprises, where the employees are not able to purchase the individual insurance policy. •
In the world of increasing cost of living,
group insurance is helping organizations by providing insurance facilities at lower cost. •
Group
insurance
offers
insurance
coverage to unlimited number of employees under the same contract; this makes it accessible to all types of organizations. •
Employers are nowadays more concerned
with high productivity and morale of the employees. Thus, group insurance has become quite handy to the employers in offering healthcare coverage as employee benefits at a lower cost.
22
•
Group insurance under the same umbrella
provides various products of life, accident and health insurance, which would ultimately help employers, retain employees and their high productivity. IMPORTANCE OF GROUP INSURANCE: Group insurance has changed the picture of the whole insurance industry. Because of different insurance products, it has been a blessing for both the employers and the employees. It offers an element of certainty to employees by comforting the people affecting by ill health, disability, unemployment and even premature death, etc., at an affordable price. Benefits to the Employees: Employees have been the major gainers of group insurance, which has increased the scope of employee benefits manifold.
Low Cost: The major benefit derived by the employee under group insurance is the low cost of policy as compared to the individual insurance policy. This is feasible due to large number of employees under the same insurance policy that ultimately reduced the administrative costs.
Employee Benefit Plan: Group insurance is the most popular employee benefit plan in the foreign countries. A large section of the working class is found to be unable to obtain an individual insurance policy for oneself/one’s spouse/family because of its high cost. 23
Thus, it depends solely on the employer to fund its insurance policy. Flexibility:
The concept of group insurance is applicable to all the sections of society and industry. This aspect of group insurance has made it popular among different groups like trade associations, etc. Tax Deductions:
The employee under the group can avail the benefits of tax deductions by contributing to the group insurance policy. Benefits to the Employers: Group insurance has become an essential employee benefit, and has helped employers in not only improving the productivity of the employees but also employee morale in the organization. Retention:
Many organizations provide group insurance to their employees in the form of an additional benefit to retain them for a longer period. Group insurance benefit not only increases the retention ratio among the employees, but also their productivity and morale.
Public Image:
24
An organization can always promote its public image through group insurance schemes and thus, attract the major productive cream of the market. Tax Benefits:
By providing the group insurance benefit plan, whether contributory or non-contributory, to the employees, the employer can avail tax deductions under the taxation rules. Size of Organization:
Group insurance is beneficial to all types of organizations, irrespective of size and number of employees. FEATURES OF GROUP INSURANCE:
Master Contract:
In group insurance, large number of employees, belonging to a homogeneous unit are insured collectively, under a “master policy or a contract” for the whole group. The master contract is issued to the employer, while the employees receive “certificate of insurance”.
Premium Payment:
On the basis of premium payment, group insurance is divided
into
two
categories,
contributory
and
non-
contributory. To obtain the benefits of high productivity, organizations prefer to take the non-contributory policy by paying fully by themselves or both the employer and the
25
employee sharing the cost as in the case of a contributory policy. In both the cases the employer gets the benefits of tax deduction to the extent of his contribution towards the premium.
Determination of benefits:
The insurance company has to decide the method of determining the benefits in a way that individual selection both by the employer and the employee does not generate conflicts. Thus, the employer needs to determine a formula or a specific level of salary or position that forms the basis for determination of benefits.
TYPES OF GROUP INSURANCE PLANS: Several kinds of group plans are being offered by the
insurance
companies but the following are the more common kind of plans available in India and abroad:
Group Term Life Insurance: Group life insurance schemes aims at providing insurance coverage to employees. These plans are usually renewable annually. The scheme may be contributory or noncontributory depending on the employment conditions. In case of contributory scheme, the proportion of premium shared by employee is deducted from the salary of concerned and together with contribution of employer is paid to the insurance company.
26
Group Supplemental Life Plans:
The Supplemental Life Plans or optional life plans offer additional insurance benefits beyond the basic benefits provided under the group term life plans. The premiums are usually shared by employer and employee. The premiums under these plans are usually dependent on age of the employee with brackets of five years. Medical coverage is also provided though members need not undergo a medical check-up, and a declaration of good health from the members is considered sufficient. Group Accident Insurance:
The
Group
Accident
Insurance
plan
is
a
modified
version of the basic term assurance plan, which provides coverage against accident risk to the member. Here, the insurance amount is paid on total and permanent disability or death of the member caused purely due to accident. On temporary disability, regular income for the period of unemployment
is
provided.
The
coverage
is
usually
extended full time i.e., non-occupational and twenty four hour basis. In most cases the premium is fully borne by the employer.
Group Credit Life Insurance: The Group Credit Life Insurance plan is a modified version of the Group Term Life Insurance plan, which offers death benefit that is equal to the outstanding debt amount of the member. These plans are most popular in the banks, which lend huge money and the credit risk assumed by them. The 27
member under the policy is usually the creditor who takes loans from the lender. The lender can take a group credit life insurance plan on the lives of his debtors, and the premium is borne by lender on non-sharing basis.
Group Disability Income Insurance: Group Disability Income plans intend to provide periodical income during the loss of income caused due to disability like, accident or sickness. These plans help a member to meet his/her basic financial needs caused due to unfortunate event. Determining the amount of disability stands as a challenge for the insurance company. The group disability plans are issued on short-term and long-term basis.
Group Gratuity Scheme: According to the provisions of the Act, every employer needs to pay gratuity on retirement or death of an employee at a rate of 15 day’s salary for every completed year of service rendered. An employer has got option on the creation of a trust, to either manage it privately or enter into an agreement with an insurance company for its management. Here, an employer creates a trust, and the trustees enter into a group gratuity scheme with a life insurance company. The trustees delegate the management of the trust, the life insurance company, and on such delegation, insurance company takes care of the administration, investment and periodical valuations of the fund.
Group Superannuation Scheme: 28
The superannuation schemes were developed with an intention
to
provide
post-retirement
income
to
the
employees. In India, these schemes were introduced much later, while in western countries they where available from the beginning of this century. A well designed and managed group superannuation plan can provide a considerable amount to an employee, without the employer prone to much complications and hardships.
Group Leave Encashment Scheme: A Group Leave Encashment Scheme provides employers a method to fund the leave encashment liability of their employees.
An
advantage
of
the
scheme
is
that
employer/trustees need not bother about investment of funds and actuarial valuation. Insurance companies also offer death benefit under the schemes. Employers need to pay the contributions in the form of premiums to the insurance company. This is mainly non-contributory scheme. The insurance company pays the leave encashment amounts as and when an employee retires.
Group Disability Scheme: Disability is defined as the inability of the insured employee to perform the duties of his job, owing to any occupational or non-occupational injury, accident or sickness. Disability insurance provides security in the form of stated amount of periodic income against loss of income owing to an insured’s inability to work due to a disability, illness or accident. Such
29
coverage could be had either for disabilities due to accidents alone or accidents and illness. Group Health Insurance:
A couple of health insurance schemes are available in India, which
are
offered
by
public
and
private
insurance
companies. Group Mediclaim Scheme:
The
group
mediclaim
scheme
is
available
to
any
group/association/institution/corporate body of more than 50 persons, provided it has a central administration point. Only one policy is issued for the entire group. It is not permissible to issue any unmanned group policy.
SOCIAL SECURITY: Social security has emerged as a sequel to the society from agricultural to industrial that changed the very social fabric as the people who migrated to the big cities found themselves to be financially insecure as they could find very few people around to share their uncertainties/emotional needs with. This change occurred first in Europe during the 19th century. Although industrial revolution brought with it increased material benefits, it also led to unsuitable
living
conditions,
increased
working
hours
and
disparities in wealth between the upper and the lower class of people in the society. To arrest the ill effects of such disparities, many governments came up with the concept of “Social Security”.
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In the Indian scenario, the government is the major player in the field of social security measures. Social security is mainly in the form of government initiated employer benefits, rural insurance and benefits for the social sector. Apart from the government, the private employers and insurance companies are forging ahead in the field of social security or social insurance in the form of various employee benefit packages. EMPLOYEE BENEFIT SCHEMES: Over a period of time, employers too have realized that it is their interest to protect and provide different kinds of benefits besides wages to their employees. Thus, the term “employee benefits” came into existence. In a broad sense, it includes everything that an employer made available/provided to the employees, other than direct wages and cash bonuses, including government-mandated benefits and perks, etc., provided to managers / executives etc. To start with, the “employee benefits” were mostly confined to all that an employee would be requiring in situations like death, accident, sickness, retirement and unemployment. However, as time advanced the term “employee benefits” expanded its coverage. The prominent form of employee retirement benefits such as:
Provident Fund
Employees Deposit-Linked Insurance Scheme
Gratuity
Employees Pension Scheme
PROVIDENT FUND
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Provident fund is a lump sum amount accumulated over a period
of
service
of
employee,
and
is
paid
on
retirement/death/resignation of the employee. Both employer and employee contribute towards provident fund account of employee. It is a defined contribution scheme, with the minimum amount of contribution fixed by the government. An employee can be part of one of the following schemes: • Employees provident fund scheme. • Recognized provident fund. • Provident fund schemes of government employees. • Public provident fund. Employees Provident Fund Scheme The Employees Provident Fund Act was passed with the objective of providing adequate financial support to the employees on their retirement. This act was amended by introducing benefits for the dependants of the employee, on his/her unfortunate death while in service. This Act was later renamed as Miscellaneous Provision Act. This Act included the Employees Family Pension Scheme of the year 1971 and later on the Employees Deposit Linked Insurance Scheme in the year 1976. For those not covered by the EPF Act, the contributions to the provident fund and other retirement benefits were voluntary. BENEFITS:
32
• On retirement from service after reaching 55 years of age. • Retirement due to permanent and total incapacity for work on account of physical or mental disability. • Migration from India with the intention of permanent settlement abroad. • Termination of services. Recognized Provident Fund: Every employer who employs more than twenty people statutorily obliged to set-up a provident fund. A provident fund is in the nature of a savings plan in which the employers and the employees contribute a fixed sum as a percentage of their monthly earnings. The savings are, thus, allowed to accumulate with interest so that a lump sum is available to the employee at the time of retirement. Provident Fund Schemes of Government Employees: The employees of the central government undertakings who are entitled to pension as per service conditions, usually receive monetary benefits, from the General Provident Fund(GPF), while those who are not eligible for pension as per service conditions, receive benefits from the Contributory Provident Fund (CPF). The minimum rate of contribution in the GPF account is 6% while they can contribute an amount higher of this if desired. Apart from employee’s contribution in case of CPF, employers also contribute at a rate of 10% of salary of employees. Early
33
withdrawals and advance against available balance, subject to certain limits is allowed. Public Provident Fund: The Public Provident Fund was instituted under the Public Provident Fund Act, 1968. The PPF scheme is a financial instrument for workers in the unorganized sector to ensure old age income security through adequate accumulated savings. It is a defined contributory scheme with individual accounting system. A PPF Account can be opened by an individual on his own name. He can also open an additional account on behalf of a minor of whom he is the guardian. A PPF account can be opened at any Nationalized Bank or Post Office.
EMPLOYEES
DEPOSIT
LINKED
INSURANCE
SCHEME: Though in the Employees Provident Fund Scheme monthly contributions of the employees and employer to accumulate with interest, these accumulations take time to become sizeable amounts. Meantime, if the employee dies while in service, the payment of contribution will cease and only accumulated balance standing to his credit at that point of time will become payable to his family. If this happens in the early part of his employment, the amount outstanding in the account will be meager to fulfill needs of family of deceased. A need was felt to provide financial help to the members of the family on the unfortunate death of the employee. Hence, the Employees Deposit Linked Insurance Scheme was 34
introduced in the year 1976. Among all the schemes of EPFO, the EDLIS is believed to be the most well performing scheme.
GRATUITY BENEFIT:
The Payment of Gratuity Act is one of the legislations passed by the Indian government for providing old age income security for both organized and unorganized sector working population. The foremost purpose of the Act is to provide a minimum amount to the workers depending on the number of years of service rendered by them to their employer. Gratuity i.e., a lump sum is paid to the employees/workers on their leaving the services due to retirement, resignation, disability or death.
EMPLOYEES PENSION SCHEME:
The Employees Pension Scheme was introduced in 1995 as an important constituent for old age income benefit of employees, under the Employees Provident Fund and Miscellaneous Provisions Act. The earlier Family Pension Scheme was substituted by the Employees Pension Scheme in 1995. FPS was mandatory for all employees who joined service on or after 1st march, 1971, and for employees who joined prior to 1st march 1971; it was optional to join the scheme. Neither employer not the employees needed to make separate contributions towards the scheme, instead from the existing contribution an amount equal to 2.33% of the wages were made to the scheme. Neither employer not the employees needed to make to the scheme. Government 35
also contributed an amount of 1.16% of the wages towards the scheme. EPS is essentially a defined benefit scheme. Being a defined benefit scheme the pension payable is dependent on the final salary of the member and the number of years of service rendered.
CHAPTER 4 GROUP INSURANCE - A CASE STUDY Group Insurance Scheme is life insurance protection to groups of people. This scheme is ideal for employers, associations, societies etc. and allows you to enjoy group benefits at really low costs. Following are the different types of group schemes:-
36
Group Term Insurance Sche mes Group Insurance Scheme in Lieu of EDLI
Group Critical Illness Rider
Group Mortgage Redemption Assurance Scheme
Group Gratuity
Group Schemes
Scheme
Group Super Group Leave Encashment Scheme Group Savings
Annuation Scheme
Linked Insurance Scheme
DIAGRAM NO: 4.1 Different types of Social Security Scheme are as follows:-
37
Social Security Schemes
JanaShree Bima
Shiksha Sahayog
Aam Admi Bima
Yojana
Yojana
Yojana
DIAGRAM NO: 4.2
1)
Group Term Insurance Schemes:
Nature of the Scheme:
Group Insurance Scheme is meant to provide life insurance protection to groups of people. Administration of the scheme is on group basis and cost is low. Under Group (Term) Insurance Scheme, life insurance cover is allowed to all the members of a group subject to some simple insurability conditions without insisting upon any medical evidence. Scheme offers covers only on death and there is no maturity value at the end of the term.
Premium Chargeable:
Group (Term) Insurance Scheme is at present offered under One Year Renewable Group term assurance plan (OYRGTA). Every year on Annual Renewal date LIC
38
charges the premium depending upon the changes in size and age distribution of the age group. Different Schemes:
Group (term) Insurance Scheme has a number of varieties. The Scheme may provide for a uniform cover to all members of the group or graded covers for different categories
of
members,
cover
for
all
amounts
of
outstanding housing loans or vehicle advances, or some other benefits (e.g., life cover to supplement pension or PF benefits in case of death). The schemes may have add-ons like Double Accident Benefit, Critical Illness Benefit, Disability benefit etc. General
Features
of
various
Group
Insurance
Schemes: 1.
PREMIUM:
The premium under such scheme may be wholly paid by the employer or the Nodal Agency. However, the scheme may be contributory i.e. the members may also contribute. 2.
DOUBLE ACCIDENT BENEFIT:
Double Accident Benefit, i.e. payment of double the sum assured on death due to accident (without permanent disability benefit),
may be
allowed
under
Group
Insurance Schemes for an extra premium.
39
ELIGIBILITY:
3.
For Group Insurance Scheme in lieu of EDLIS the insurability condition is that should be a member of the Provident Fund Scheme of the employer. For other GI Schemes of employer-employee groups the insurability condition is that the member should not be absent on ground of sickness on the entry date. For all nonemployer-employee
Group
Schemes
the
basic
insurability condition is that the member should be in good health on the date of entry. 4.
ADMINISTRATION OF THE SCHEME:
At the commencement and thereafter on each Annual Renewal Date, the Group Policyholder will have to send all the member's data (and particulars of the new entrants from time to time) to the P & GS unit of LIC. Detailed OYRGTA premium calculation will be made on each Annual Renewal Date. 2)
Group Insurance Scheme in Lieu Of EDLI :
ADVANTAGES TO THE EMPLOYER :
1.
The premium payable by the employer is usually less
than the total contribution being paid by the employer to R.P.F.C; particularly when the salary level is high and average age of the group is low.
40
2.
Settlement of claim is quicker; LIC requires only the
death certificate and the Claim Form from the employer. 3.
Premium paid by the employer is treated as normal
business expenses for Income-Tax purpose.
ADVANTAGES TO THE EMPLOYEE:
Each employee is covered for a sum assured ranging between 5,000 to 2,00,000 depending upon the current salary and service put in from day one irrespective of the actual balance in the Provident Fund. Alternatively every employee/ worker can be covered for a uniform sum assured which will be decided depending upon the group size.
ACCIDENT BENEFIT:
Double accident benefit can be allowed to the extent of the Sum Assured for an extra Premium. 3)
Group gratuity scheme:
Life Insurance Corporation of India offers its Group Gratuity Cash Accumulation scheme to enable employers to meet their gratuity liability in a very simple and efficient manner. The scheme is formulated in compliance with Part C of the IV schedule of Income Tax Act and tax benefits are available as provided in Income Tax rules.
41
The gratuity arrangement with LIC provides the following services to the company:
•
Fund management under interest accumulation system
•
Claim settlement on exit as per company rules/gratuity act Built in Insurance arrangement for the employees for future service
•
MIS related to Income Tax and trusts accounts and Actuarial valuation
Fund management: Critical issues Safety: Liability on account of gratuity experiences sharp increase every year due to its nature of its computation. Apart from increase in service, increase in salary also contributes to increase in liability substantially as the benefits are payable on last drawn salary. Hence funds have to be invested in a conservative way with a consistent growth and insulated from market
risks.
The
unique
advantage
with
LIC
is
the
contributions made by the company and interests credited by LIC are irreversible. This ensures highest level of safety for the total corpus and consistency in future contributions. As the gratuity payments are statutory and LIC gratuity scheme being the only investment tool which enjoys sovereign guarantee, gives a greater comfort to employer. 42
Liquidity: A fund available with LIC is a single account for investment and claim settlement. Hence 100% liquidity is ensured for the purpose of claim settlement. Yield: LIC has been offering very competitive and consistent interest rates over the years. For the year 2009-10, LIC has offered 9.00% - 9.65% depending on fund size. The interest declared is net of administrative expenses incurred, hence no separate charges are charged after crediting the interest. Interest rate offered by LIC is on daily balancing method. Hence, there is no idle time for earning interest, hence effective rate of interest is much higher. Another significant aspect is interest gets compounded annually, hence no reinvestment issues and no time lags. No responsibility on trustees on Investment decisions: Trustees are free from all investment risks and hassles in cash accumulation system. Advantage of ‘real outsourcing’ can be derived by associating with LIC. No hidden charges: The scheme is focused on a long term association in compliance with investment regulations and statutory payment obligations and no charges are levied on the transactions for which the fund is meant for.
43
Funding can also be in a staggered pattern during the year, but no charges at entry level for any number of payments. No charges on withdrawals for resignation or retirement or death. Total corpus comprising of money contributed by the company and interest credited by LIC is available for claim settlement up to 100% subject to availability of funds. Actuarial recommendations: On annual basis, LIC provides this information to the trustees and recommends the level of contributions. Claim settlement: On the exit of an employee due to retirement / death/ resignation, trust may prefer a claim from LIC by sending a claim form. Claim amount will be made available to trustees. Trustees can have the following options : •
Preferring a claim from LIC and paying to
employee Paying the money to employees and seek
•
reimbursement •
Paying claims to employees at their end
and seeking annual reimbursement
MIS:
LIC provides statement of receipts and payments and actuarial valuation certificate and certificate of balance for the trust account.
44
Besides the above said advantages, the scheme also provides for employee welfare measures with built in insurance cover.
Insurance cover for future service gratuity:
Another salient feature of the Gratuity Scheme with LIC is that it provides for insurance coverage to the employees to the tune of future service gratuity subject to certain limits.The insurance cover can be flexible depending on the requirements of the Trust. The Group Insurance premium will be commensurate to the cover provided.
Income Tax Benefit on Insurance Premium:
The insurance premium paid towards the above said benefits is treated as deductible business expenses to the company. The premium is not treated as perks in the hands of the employees 4)
Group Super Annuation Scheme: Advantages of LIC managed Mutual Funds:
The LIC managed Pension fund has the following added and distinct advantages:1. An attractive and competitive yield on the fund will be credited to Fund A/c. 2. The problem of liquidity gets automatically eliminated as soon as the fund is managed by LIC.
45
3. We
conduct
free
actuarial
valuations
of
the
funds
administered by us from time to time. 4. The Administration of the fund is carried out by us in a scientific manner and claims are promptly settled. 5. Group
Insurance
in
conjunction
with
the
Group
Superannuation Scheme can be taken by an Organization to provide for an attractive lump sum payment on the unfortunate death of a member while in service, at very nominal cost. Superannuation Scheme Provided by LIC:
The employer contributes a certain fixed percentage of salary of each member. Such Contributions are accumulated by LIC and the accumulated amount is utilized to provide various benefits as mentioned below. BENEFITS: 1) ON RETIREMENT: On Retirement of a member, the corpus (contributions plus interest) is utilized to provide the pension as per his choice. 2) ON DEATH: The Pension is payable on the life of the beneficiary. Corpus is utilized towards the payment of pension of the type the beneficiary may opt and the benefit so received is tax free. A lump sum payable by way of death besides the pension, if 46
the employer has taken Group Insurance Scheme in conjunction with the Group Superannuation Scheme. 3) ON WITHDRAWAL: He can get the equitable interest transferred to the Superannuation Scheme of the new employer or opt for immediate or deferred pension.
PENSION OPTIONS PROVIDED BY LIC:
1. Life Pension ceasing at death. 2. Life Pension with Return of Capital and Group Pension Terminal Bonus on death. 3. Life Pension guaranteed for 5,10,15 or 20 years and life thereafter. 4. Joint Life Pension payable on the last survivor of the employee and spouse. 5. Joint Life Pension payable to the last survivor of the employee and spouse with return of capital on the death of the last survivor. If desired, 1/3rd of the pension can be commuted at vesting. ELIGIBILITY CONDITION: It is not obligatory or statutory on the part of the employer to provide for pension to all employees. It is entirely up to him to decide to which class/ classes of employees he desires to extend the scheme. The eligibility conditions may be defined on the basis of designation or salary. (However, after the categories are specified, employer cannot discriminate
47
between the employees and thus extends the scheme uniformly). CONTRIBUTION: The maximum annual contribution that an employer can make to the Pension Fund and Provident Fund is restricted by the Income Tax Provisions to 27% of the annual salary (basic plus D.A.) The annual contributions are treated as deductible business expenses. WHO PAYS CONTRIBUTION? Mostly the employer contributes, but is so desired, both the employer and the employees may contribute, in which case the scheme is called a Contributory Pension Fund Scheme. 5)
Group Savings Linked Insurance Scheme : OBJECTIVES OF THE SCHEME:
•
Protection at low cost without individual
evidence of health. •
Attractive returns on savings to meet post
retirement needs. •
Simple procedures for granting life cover to
large groups under one umbrella.
INTRODUCTION OF THE SCHEME:
48
The Scheme can be introduced
a)
by employers provided certain percentage of employees is willing to join the Scheme. b)
For the new entrants to the
Company, the membership of the Scheme is compulsory. PREMIUM:
It is decided on the basis of Group size and the occupation of the group. Premium has two components i.e. Risk Premium and Savings Premium. Risk Premium is utilized to offer life cover and the Savings Premium is accumulated in members account. ACCIDENT BENEFIT:
Double accident benefit can be allowed to the extent of the Sum Assured for an extra Premium. INTEREST ON SAVINGS
:
The present rate of interest allowed on saving portion of premium is 8% compounding yearly.
ELIGIBILITY TO JOIN THE SCHEME:
Any employee irrespective of his present state of health is eligible to join the scheme subject to certain conditions. The only insurability condition is that the employee should not be absent on medical ground on the date of commencement of the scheme. All employees who have not crossed the retirement
49
age are eligible to join the scheme. All future employees have to join the scheme compulsorily.
TAX BENEFITS:
Employees' total contribution, savings as well as risk premium is entitled for income-tax rebate under Sec. 80C of the Income Tax Act. The entire claim amount including interest earned payable on retirement or leaving service or on death is free from income-tax. The premium paid by the employer towards insurance cover is treated as business expenses.
6)
Group Leave Encashment Scheme:
Funding of leave encashment:
End-of-the-year
leave
encashment
facility
available
to
employees can be a huge liability to the company. So can be Medical Leave Encashment, if provided for. To meet this need of entrepreneurs and businesses, LIC has introduced Group Leave Encashment Scheme. Just pay a yearly premium, fund your leave encashment liability and let LIC take care of your worries.
The Features:
Group Leave Encashment Schemes (GLES) of LIC helps the employers in funding of their lave encashment liability. The salient features of the scheme are as follows:-
50
1. The Company will submit the employees' data and rules for Leave Encashment. LIC will make actuarial valuation and find out the funding requirements which shall be quoted to the company. The company will contribute as per the advice of LIC. 2. A uniform life cover per employee or graded cover will be provided under One Year Renewable Group Term Assurance Plan of LIC. A small term insurance premium will be charged in addition to contributions for funding. 3. A Running Account will be maintained under the scheme and the contributions (excluding term assurance premium) will be credited to this account and all claims except term assurance cover will be settled out of the Running Account. Interest at the rate declared by LIC from time to time will be credited to the Running Account at the end of the financial year.
Benefits:
1. On the exit of an employee or encashment of leaves during
the service the Leave Encashment amount will be paid from the Fund of the scheme maintained with LIC. 2. On the death of an employee, in addition to his / her leave encashment benefit, his/her family will be entitled to the amount of Insurance Cover, which will be tax-free.
51
3. The Life Insurance Corporation of India will do the Actuarial Valuation and will provide necessary certificate as per AS15. 4. The amount of Term Insurance Premium paid for Life Insurance Cover will be treated as business expenses. 7)
Group Mortgage Redemption Assurance Scheme :
‘Group Mortgage Redemption Assurance Scheme’, is a Group Insurance Scheme for the borrowers of Housing/Vehicle Loans from Financial Institutions where Loan is recovered under EMI. Under the Scheme, the premium is payable in a single installment covering a decreasing life cover. Insurance cover every year will be almost equal to the loan outstanding at the anniversary date of each borrower. Under the scheme, the premium depends upon: 1. Age (nearer Birthday) at entry of the member into the Scheme. 2. Outstanding loan amount at entry date. 3. Term of loan. 4. Schedule of repayment. 5. Rate of interest with which the loan was availed. Any borrower may become member of this scheme. The minimum term of assurance is 3 years. Existing Borrowers can join the scheme with certain conditions within 6 months of the commencement of scheme.
52
In case of death of the member during the coverage period, life cover on the anniversary date proceeding the date of death is payable. The claim proceeds are used to square off the outstanding loan. 8)
Group Critical Illness Rider :
Critical Illness product (accelerated benefit) is basically offered as an optional Rider benefit to all Employer-Employee group policyholders (both existing and new schemes) along with Group term insurance schemes i.e. OYRGTA (One year renewal group term assurance) type schemes. Schemes along with which the rider can be given shall include Group insurance, Group Gratuity (CA), Group Leave Encashment and Group insurance in conjunction with Superannuation. The Benefit will not be extended to spouses or dependants. Only full time permanent employees who are actively at work will be eligible for Critical Illness cover. The relevant premium is to be paid by the Group Policyholder.
FEATURES: 1. The Group critical illness rider benefit to employees is given as an add on benefit to the Group policy which has an element of life cover. 2. The Group Critical Illness rider allowable for each member shall be a minimum of 20 % of sum assured under the base plan and shall not exceed 100% of the sum assured under the base plan subject to minimum 53
of Rs. 50 Thousands and maximum of Rs 20 lac per member.
3. All members of the attached policy should participate at inception and all eligible new members should compulsorily participate. 4. The diseases covered under the rider (subject to certain exclusions) are : 1. Cancer 2. Coronary Artery (Bye pass) Surgery 3. Heart attack (Myocardial infarction) 4. Stroke 5. Kidney failure (End stage renal disease) 6. Aorta (Surgery of Aorta) 7. Heart valve replacement Major Burns.
8.
BENEFITS :
1.
The Critical Illness Accelerated benefit is payable upon
the first incidence of any of the 8 specified diseases and evidenced as per the diagnostic criteria specified. The rider shall terminate on payment of the Critical Illness benefit. 2.
The Group Critical illness (Accelerated) Benefit pays a
lump sum amount as a percentage of Sum assured out of 54
the Sum assured under the life cover in the event of occurrence of 8 diseases covered under the rider. No Critical Illness Benefit shall become payable to a
3.
member if the disease occurs within 90 days of the start of the coverage for that member of the scheme. This period of 90 days shall be called “Waiting period”. 4.
In case of death nothing is payable under this rider.
However, under the base plan (i.e., the scheme on which the rider is opted for) benefits as under shall become payable : A benefit equal to base sum assured if no
•
critical illness benefit is payable or has been paid earlier. •
If critical illness benefit is payable or
already paid, the benefit is reduced by the amount of critical illness benefit payable or already paid. In other words, the difference between the base sum assured and the critical illness benefit already paid is payable on death.
1.
2.
EXCLUSIONS: Diseases in the presence of an HIV infection. Diseases that have previously occurred in the life of the member of the scheme i.e. the benefit is payable only if the disease is a first incidence , regardless of whether the earlier incidence occurred before the individual was
55
covered or whether the insured was covered by us or another insurer. 3.
Any disease occurring within 90 days of the start of the coverage for each member of the scheme. (I.e. during the waiting period).
4.
No payment will be made for any claim directly or indirectly caused by, based on, arising out of, or howsoever, to any Critical Illness for which care, treatment, or advice was recommended by or received from a Physician, or which first manifested itself or was contracted before the start of the policy period, or for which claim has or could have been made under any earlier policy.
5.
6.
Any congenital condition. Alcohol or solvent abuse or taking of drugs, narcotics or psychotropic substances unless taken in accordance with the lawful directions and prescription of a registered medical
practitioner.
7.
Failure to seek or follow medical advice.
8.
War, invasion, act of foreign enemy, hostilities(whether war be declared or not),armed or unarmed truce, civil war ,mutiny, rebellion, revolution, insurrection, military
or
usurped power, riot or civil commotion, strikes.
56
9.
Taking part in any naval, military or air force operation during peace time.
10. Participation by the member of the scheme in any flying
activity, except as a bona fide, fare-paying passenger of a recognized airline on regular routes and on a scheduled timetable. 11. Participation by the member of the scheme in a criminal or unlawful act. 12. Engaging or taking part in professional sport(s) or any hazardous pursuits, including but not limited to , diving or riding or any kind of race, underwater activities involving the
use
of
breathing
apparatus
or
not,
hunting,
mountaineering, parachuting , bungee-jumping. 13. Nuclear contamination, the radio active, explosive or hazardous nature of nuclear fuel materials or property contaminated by nuclear fuel materials or accident arising from such nature. 14. Intentional self inflicted injury, suicide or attempted suicide, while sane or insane. 15. Existing diseases are not covered.
SOCIAL SECURITY SCHEMES:
57
1)
JanaShree Bima Yojana (JBY):
The objective of the scheme is to provide life insurance protection to the rural and urban poor persons below poverty line and marginally above the poverty line. ELIGIBILITY:
A person who is •
Aged between 18 and 59 years.
•
Below or marginally above poverty line
•
A member of any of the approved vocation/occupation groups NODAL AGENCY:
A State Government Department which is concerned with the welfare of any such vocation/occupation group, a Welfare Fund/ Society, Village Panchayat,NGO,Self-Help Group,etc. MINIMUM MEMBERSHIP SIZE:
Twenty five. 2)
Shiksha Sahayog Yojana :
This is a scholarship scheme launched on 31.12.2001 for the benefit of children of members of Janashree Bima Yojana. ELIGIBILITY:
Students studying in ix to xii standards, whose parents are covered under Janashree Bima Yojana. If a student fails and is detained in the same standard, he will not be eligible for scholarship for the next year in the same standard. 58
BENEFIT: Scholarship of Rs 300/- per quarter per child will be paid for maximum period of 4 years. The benefit is restricted to two children per member (family) only.
PREMIUM:
No premium is charged for the scholarship.
HOW TO CLAIM SCHOLARSHIP:
The Nodal Agency will identify the students. The member of Janashree
Bima
Yojana
whose
child
is
eligible
for
scholarship has to fill up an application form (available with Nodal Agency) and submit to the Nodal Agency. The applications duly filled up and certified will be sent along with the list of the beneficiary students by the Nodal Agency to the concerned LIC, P&GS Unit for disbursement of scholarship/s. The scholarship/s will be disbursed to the beneficiary students through the concerned Nodal Agency. As only a limited number of beneficiaries will be provided scholarship under the scheme, the selection for eligible students will be made on the basis of poorest of the poor. The scheme will be administered through Pension and Group Schemes Department of LIC of India. 3)
Aam Admi Bima Yojana :
59
In a rural landless household, when everyday living is a struggle, it is difficult to face life with a smile. And it becomes even more difficult when the future of your family is uncertain. AAM ADMI BIMA YOJANA, a prestigious scheme of the Central and State / Union Territory Governments and administered by LIC brings a ray of hope and smile to these households.
NODAL AGENCY :
The Nodal Agency shall mean the State / Union Territory Government
appointed
to
administer
the
scheme.
The Nodal Agency shall act for and on behalf of the insured members in all matters relating to the Scheme.
IDENTIFICATION OF BENEFICIARIES:
The State / Union Territory Government in consultation with the Panchayats will identify the persons to be covered under the scheme. All the members will be provided with an identity card by LIC with an unique identity number.
ELIGIBILITY:
The member should be aged between 18 and 59 years. The member should be the head of the family or one earning member in the family of rural landless household.
AGE PROOF:
•
Ration Card
•
Extract from Birth Certificate
•
Extract from School Certificate. 60
•
Voters list
•
Identity Card
In case of doubt, a certificate from Primary Health Centre can be accepted as authentic proof of age.
61
CHAPTER 5 CONCLUSION
Key to a successful business is keeping the employees motivated. Happy and secured employees work better, which in turn reduces the employer’s tension. Group Insurance is an insurance which covers a group of people (like employees of a common employer or professionals in a common group). The concept of Group Insurance emerged and flourished in the western and developed countries. While it took a late start in India, the major developments were observed only after Independence. The present form of Group Insurance originated in the United Stated of America in the early 19th century. The concept of Group Insurance was introduced; lot of hostility came from different sections of public. The scope of Group Insurance has been broadened with the passage of time. The Group Insurance plays an important role in enabling the employers, the employee’s benefit schemes at case. However, the more demanding role the Group Insurance Schemes have to face is to provide protection and coverage to those who are self employed. Industrialization has drastically changed the Socio-economic aspects of human life around the world. Social and economic insecurity has become the main cause of concern for individual,
employees and governments. Social Security, Welfare legislations and employee benefits to a great extent have attempted to address these issues. Employee benefit schemes provide adequate financial security in two events namely premature death and
excess
longevity.
Group
Insurance
has
become
an
indispensable part of the employee benefit package which provides financial benefit at a very low cost.
BIBLIOGRAPHY: 1) GROUP INSURANCE - THE ICFAI UNIVERSITY
WEBLIOGRAPHY: 1) www.ask.com 2) www.licindia.in
