Group Insurance plans are meant to
provide life insurance protection to group of people. The group may be: (I)
Employer- employee group; (II) Labour union group; (III) Creditor- Debtor
group; (IV) Voluntary group like that of teachers, doctors or lawyers. A master policy is issued under a contract
between the employer and the insurer and the policy includes the names of the
workers and the insured sum of each worker determined on the following basis:
(A) Salary of the employee; (B) Job classification; © Length of the service.
Without medical examination, employees between the ages of 18 and 60 are
covered under this policy which can be contributory or non-contributory. If it
is contributory, both the employer and employees pay the premium.
The LIC of
India provides the following schemes: (I) Group Savings Linked Insurance
Scheme- It is, in fact, a group term insurance where under contribution is
deducted out of the salary of the member. A portion of the contribution is
utilised as premium to cover term assurance for a fixed sum and the balance
treated as savings which are accumulated at an attractive rate. At present this
rate is 8% p.a. Members exit the scheme on retirement or earlier, death or
resignation. Eligibility: Selected Employer-employee groups such as public
sector corporations and corporates of repute who generally keep a very
methodical reports of their employees. Benefits- (A) on death while in service. (I) Amount of
insurance cover. (II) Accumulated savings up to the date of death. (B) On
retirement/resignation: (I) Accumulated savings up to the date of exit. Tax
Aspects- (II) Group superannuation scheme: It is designed to provide pension to
employees on their retirement from services.
The scheme may be financed by the employer alone or jointly with the employees. A decreasing group insurance cover in conjunction with super annuation benefits may also e provided under the scheme. The scheme is of two types: (a) Money Purchase Scheme- The contributions are fixed generally as a percentage of the salary. The accumulated value of such contribution is utilised to purchase the pension (b) Benefit Purchase Scheme- The amount of pension is fixed by the employer in advance generally in relation to the salary drawn by the employee at the time of exit.. (e) Joint Life pension payable to the last survivor of the employer and spouse, with return or capital of death of last survivor. Contributions and who pays: The maximum annual contribution that an employee can make to the pension fund the 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.
The scheme may be financed by the employer alone or jointly with the employees. A decreasing group insurance cover in conjunction with super annuation benefits may also e provided under the scheme. The scheme is of two types: (a) Money Purchase Scheme- The contributions are fixed generally as a percentage of the salary. The accumulated value of such contribution is utilised to purchase the pension (b) Benefit Purchase Scheme- The amount of pension is fixed by the employer in advance generally in relation to the salary drawn by the employee at the time of exit.. (e) Joint Life pension payable to the last survivor of the employer and spouse, with return or capital of death of last survivor. Contributions and who pays: The maximum annual contribution that an employee can make to the pension fund the 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.
Mostly the employer contributes, but if so
desired, both the employer and the employees may contribute, in which case the
scheme is called contributory pension Fund scheme. Benefits on Retirement: On
retirement of a member, the corpus (contribution plus interest) is utilised to
provide the following: (a) Commuted value (equipment to 1/3 rd of the corpus)
which is tax free. (b) The corpus that remains after providing for the commuted
value is taken as the purchase price to provide for pension as per option set
above. Tax Benefits- (a) The annual contribution is treated as a deductible
business expense in terms of sec. 36 (I) (IV) of the Income Tax Act. (b) The
employees contribution, in the case of contributory scheme qualifies for
deduction u/s 80c of the Income Tax Act. (III) Group Gratuity Scheme: Under the
payment of Gratuity Act 1972, it is employer’s statutory liability to pay 15
days salary (15/26 of a month wages) for every completed year of service to
each of his employees on their exit, for any reason after five years of
continuous service. In order to provide funds for Gratuity, the LIC of India
has introduced Group Gratuity scheme to the employer. A unique feature of the
scheme is to provide, in the event of premature unfortunate death of employee,
a sum equal to the gratuity, which he would have received on his normal retirement.
Legal and Taxation Angle- Approved Gratuity funds are governed by part C of the
Fourth Schedule to Income Tax Act 1961 and part XIV of income tax Rules 1962.
(a) Employer’s annual contribution shall not exceed 8 1/3% salary (Rule 103).
(b) Employer’s contribution is allowed as business expenses {Section 36 (I)
(V)}. © Employer’s contribution is not treated as perquisite in the hands of
employees (Rule 3c of part C, Schedule IV). (d) Gratuity upto Rs. 3.5 lakh is
tax free {Sec. 10(10)}. How the scheme operates- (a) Contributions (premiums)
received from employer by the insurer are invested as per special guidelines
laid for such funds. (b) The gratuity is paid out of this accumulated fund. ©
Death cover benefit is paid out of a separate term assurance fund maintained by
the insurer. (IV) Group Scheme for Weaker Sections of the Society-
The Govt. of
India has provided insurance to the weaker section of the society to the tune
of Rs. 5000. Other people may get benefit of this scheme provided they pay @
Rs. 75 per annum to the LIC. Half of the premium will be met by the State Govt.
and Central Govt. as provided in the budget 1995-96. The amount of insurance
has increased to Rs. 10000 w.e.f. 15-8-96. It has been extended to all sections
of people who unable to purchase policies on their lives.