“Group Insurance”

Bachelor of Commerce

Banking & Insurance

Semester VI

2015-2016

Submitted by

Mast. Gurudatta Juvekar

Roll No: 30

Parle TilakVidyalaya Association’s

M.L.DAHANUKAR COLLEGE OF COMMERCE

Dixit Road, Vile-Parle (E)

Mumbai- 400 057.

DECLARATION

I Gurudatta Juvekar, the student of B.Com.

Banking & Insurance Semester VI (2015- 2016) hereby

declare that I have completed the Project on Group

Insurance.

The information submitted is true and original

to the best of my knowledge.

_____________________

(Signature of Student)

Gurudatta Juvekar

Roll No: 30

M.L.DAHANUKAR COLLEGE OF COMMERCE

Dixit Road, Vile-Parle (E)

Mumbai- 400 057.

CERTIFICATE

This is to certify that Mr.Gurudatta Juvekar, Roll

No. 30 of B.Com. Banking and Insurance, Semester VI

(2015- 2016) has successfully completed the project on

Group Insurance under the guidance of Prof. Mitali

Shelankar.

Course Coordinator: Prof. Mitali Shelankar

Principal: Dr. Madhavi Pethe

Project Guide/ Internal Examiner: Prof. Mitali

Shelankar

External Examiner:

ACKNOWLEDGEMENT

To list who all have helped me is difficult because

they are so numerous and the depth is so enormous.

I would like to acknowledge the following as being

idealistic channels and fresh dimensions in the

completion of this project.

I take this opportunity to thank the University of

Mumbai for giving me chance to do this project.

I would like to thank my Principal, Dr.Madhavi

S. Pethe for providing the necessary facilities required

for completion of this project.

I take this opportunity to thank our

Coordinator/Prof.Mrs.MitaliShelankar, for her moral

support and guidance.

I would also like to express my sincere gratitude

towards my project guide Prof. Mitali Shelankar

whose guidance and care made the project successful.

I would like to thank my College Library, for

having provided various reference books and magazines

related to my project.

Lastly, I would like to thank each and every person

who directly or indirectly helped me in the completion

of the project especially my Parents and Peers who

supported me throughout my project.

TABLE OF CONTENTS

LIST OF DIAGRAMS

DIAGRAM

NO

TOPICS PAGE NO

4.1 GROUP SCHEMES 36

4.2 SOCIAL SECURITY

SCHEMES

37

SR.NO DESCRIPTION PAGE

NO

1 CHAPTER I 1–3

2 CHAPTER II 4–9

3 CHAPTER III 10–34

4 CHAPTER IV 33–74

5 CHAPTER V 75–77

6 BIBLIOGRAPHY 78

ABOUT THE REPORT:

1)TITLE OF THE STUDY:

The present study is titled as – “A PROJECT REPORT

ON GROUP INSURANCE”. 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.

iv. To study the eligible groups for group insurance

coverage.

3) LIMITATION OF THE STUDY:

The present study suffers from all limitations of case

study method.

4) DATA & METHODOLOGY :

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)Chapter1: “An Introduction” gives an introduction

of title and the report.

b)Chapter2: Gives profile of Life Insurance

Corporation of India.

c)Chapter 3: Deals with Group Insurance (Theoretical

view).

d)Chapter 4: Group Insurance – A Case Study.

e)Chapter 5: Summarizes the result of the study.

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 self-insure through saving

money for possible future losses.

1

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 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 –

2

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.

3

CHAPTER – 2

LIFE INSURANCE CORPORATION OF INDIA

– A PROFILE

The Life Insurance Corporation of India (LIC) is the

largest state-owned 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,

4

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

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

5

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.

6

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, 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.

7

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.”

8

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."

9

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.

10

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 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

11

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

12

handy to the employers in offering healthcare

coverage as employee benefits at a lower cost.

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:

13

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. Thus, it depends solely on the employer to

fund its insurance policy.

14

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:

15

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:

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:

16

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

17

or both the employer and the 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:

18

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 non-contributory 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.

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

19

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,

20

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 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.

21

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:

The superannuation schemes were developed with

an intention to provide post-retirement income to

22

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

23

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 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.

24

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

25

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”.

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

26

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

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

27

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

28

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:

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:

29

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

30

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 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

31

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 introduced

32

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

33

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 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.

34

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:-

35

DIAGRAM NO: 4.1

Different types of Social Security Scheme are as

follows:-

36

Group Critical Illness Rider

Group

Mortgage

Redemption Assurance

Scheme

Group Leave Encashment Scheme

Group Savings

Linked

Insurance

Scheme

Group Super

Annuation

Scheme

Group Gratuity

Scheme

Group Insurance Scheme in Lieu

of EDLI

Group Term

Insurance Sche

mes

Group Schemes

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 37

Social Security Schemes

JanaShree Bima

Yojana

Shiksha Sahayog

Yojana

Aam Admi Bima

Yojana

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 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

38

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.

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3. ELIGIBILITY:

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 non-

employer-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

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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.

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.

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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

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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.

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

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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.

Liquidity:

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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:

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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.

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:

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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:

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LIC provides statement of receipts and payments and

actuarial valuation certificate and certificate of

balance for the trust account.

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.

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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.

3. We conduct free actuarial valuations of the funds

administered by us from time to time.

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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:

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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 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:

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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

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discriminate 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:

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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:

a) The Scheme can be

introduced 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 54

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

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the date of commencement of the scheme. All

employees who have not crossed the retirement 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.

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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:-

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.

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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

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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.

3. The Life Insurance Corporation of India will do the

Actuarial Valuation and will provide necessary

certificate as per AS-15.

4. The amount of Term Insurance Premium paid for

Life Insurance Cover will be treated as business

expenses.

7) Group Mortgage Redemption Assurance

Scheme :

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‘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

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Borrowers can join the scheme with certain

conditions within 6 months of the commencement of

scheme.

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

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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 of Rs. 50

Thousands and maximum of Rs 20 lac per

member.

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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

8. Major Burns.

BENEFITS :

1. The Critical Illness Accelerated benefit is

payable upon the first incidence of any of the 8

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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 the Sum assured under the life

cover in the event of occurrence of 8 diseases

covered under the rider.

3. No Critical Illness Benefit shall become

payable to a 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 :

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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.

EXCLUSIONS:

1. Diseases in the presence of an HIV infection.

2. 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 covered or

whether the insured was covered by us or another

insurer.

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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. Any congenital condition.

6. Alcohol or solvent abuse or taking of drugs,

narcotics or psychotropic substances unless taken

in accordance with the lawful directions and

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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.

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.

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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.

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SOCIAL SECURITY SCHEMES:

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/

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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.

BENEFIT:

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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.

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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 :

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.

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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

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one earning member in the family of rural landless

household.

AGE PROOF:

Ration Card

Extract from Birth Certificate

Extract from School Certificate.

Voters list

Identity Card

In case of doubt, a certificate from Primary Health

Centre can

be accepted as authentic proof of age.

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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.

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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

76

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.

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BIBLIOGRAPHY:

1)GROUP INSURANCE

- THE ICFAI UNIVERSITY

WEBLIOGRAPHY:

1) www.ask.com

2) www.licindia.in

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