Group Insurance Practices PDF

Facebook Page Facebook Group Telegram Group 95 CHAPTER 5 GROUP INSURANCE Chapter Introduction...

Facebook Page Facebook Group Telegram Group 95 CHAPTER 5 GROUP INSURANCE Chapter Introduction In this competitive age, insurance companies are trying their level best to secure the highest client base. For this they try to come up with various innovative products to attract maximum customers towards them. They are also trying to expand their operations involving different customer segments. Corporate clients are one such customer segment that is being targeted by insurance companies. Corporate clients in turn, are trying to outsource their various activities to specialists in the fields (e.g. Actuaries) such as managing the funds for gratuity, pension, leave encashment etc. who have the required expertise and experience for managing these. In this chapter we will study about how insurance companies try to provide solutions to corporate clients for managing these employee benefits though group insurance. Understand the importance of group insurance. Learn about the different group insurance schemes. Facebook Page Facebook Group Telegram Group 96 Look at this scenario Makheja Group is a leading textile manufacturer of the country. They have over 200 employees. Makheja Group’s main concern is to retain the best of talent in their company. They spend huge amounts of money in providing various benefits to their employees. This is done to discourage the employees from leaving the company and also seek corporate tax exemptions. Some of the benefits that are provided by Makheja Group are life insurance, superannuation, and gratuity, leave encashment, pension etc. Gratuity and superannuation are long term liabilities, the provision for which has to be made today. Also gratuity that is provided to employees is a statutory requirement; hence the company has to make sure that the legal aspects are well taken care of The biggest problem the Makheja Group faces is to determine the correct amount of liability (payments to be made towards gratuity, pension etc) that will arise in future. Also they need to efficiently invest these funds to get optimum returns. The solution that the Makheja Group is looking for is to have these liabilities managed by personnel with the necessary expertise in managing the corporate benefits provided to their employees. It will help Makheja Group a great deal maximizing the benefits to their employees. This is where insurance companies can pitch in with their expertise (e.g. by actuaries) and help companies like the Makheja Group and others. In this chapter we will learn about the various retirement benefits schemes offered by employers to their employees and how insurance companies help companies manage these schemes. 1. Understand the importance of group insurance. [Learning Outcome a] Group insurance The solution to the plan discussed above is provided by insurance companies in the form of Group Insurance. Life insurance companies cater to corporate clients by providing services to manage various benefits such as term insurance, pension, gratuity etc. Insurance companies provide several group insurance schemes to their corporate clients to cater to their various requirements. Facebook Page Facebook Group Telegram Group 97 Group insurance schemes provide insurance to a group of people under one single master policy. The individuals who get insurance cover under the policy are referred to as ‘members’ of the group insurance scheme. Individuals, who exit the organisation to join any other organisation, may or may not continue, to derive benefits of group insurance scheme, depending on the terms and condition of the scheme. The amount of insurance cover for each employee depends upon certain criteria such as: Employee grade / designation Salary drawn by the individuals Duration of employment with the current employer etc Group insurance can be terminated by the insurance company or the employer at the end of any year. Apart from the group insurance provided by the employer, personal insurance can also be taken by employees on their own. As many person are covered under one single contract, the administrative cost are low, because the coverage is not at the choice of the individual concerned, the chance of an adverse selection is low. The terms and the coverage can be re-negotiated at the time of renewal. Eligibility for group insurance Employer - Employee groups: The most important target group for group insurance scheme is the employer - employee group. Employer is a word used for either a large company or a small firm. The only condition is that there should be a minimum number of employees (say generally 15 – 20) working in that company. The employees of an organisation are treated as one group, to whom insurance is issued as a single unit. The employees get the benefit of group insurance till they are employed by the company. The individual beneficiary members of the group cannot choose the amount of insurance cover. The amount will be determined on criteria which are applied uniformly to all the members of the group. The Makheja group, discussed in the concept given above is an example of this kind of a group. Makheja group as an employer can take group insurance for its employees. All 200 employees will be considered as a single unit for providing group insurance. Facebook Page Facebook Group Telegram Group 98 Professional associations: These groups are formed to protect the interest of professionals like doctors, engineers, lawyers, chartered accountants etc. These professional associations can avail the benefits of group insurance. Co-operative Societies: are organisations which are managed by individuals for their mutual benefit. Creditor – debtor: Under this group, the creditor, who has provided some loan to individuals, can take group insurance for covering the dues of debtors to safeguard his loans which have been advanced. Examples can be banks, NBFCs seeking insurance cover for loans given by them to their customers. Weaker sections of the society: group insurance also targets the weaker sections of the society, who otherwise, would not have been able to take the advantage of insurance. It should be remembered that if a group is formed specifically with the intent to get the benefit of insurance, it will not be eligible for group insurance. Main features of group insurance are as follows: Master policy: As a group is considered as a single unit, a single policy known as a master policy is issued to the authorised person of the group who pays the premium. The individual are the beneficiaries. They are not parties to the contract. The amount and terms of insurance are negotiated by the policyholder and not by the individual beneficiaries. The benefits will be determined on basis that apply uniformly to all the individuals. In an employer – employee group, the employer is issued a “master policy” by the insurance company and the individual employees are covered. In a creditor debtor group, the creditor will be issued the master policy. For example a bank will be issued a master policy for its borrowers(debtors) who have availed of housing or vehicle loans etc Certificate of insurance: The employees who get covered under group insurance are issued certificates of insurance (COI). Individual members are not separately evaluated on risk factors. Underwriting is based on an assessment of the group as a whole. Minimum requirements like “actively at work” and “no medical leave for the last 6 months” could be the simple conditions of eligibility (The definition of “actively at work” could differ from one group to the other. Facebook Page Facebook Group Telegram Group 99 Everybody fulfilling specified criteria will have to compulsorily join the group. Usually, when the scheme is being introduced for the first time, the existing members will be given a choice of joining or not joining the scheme. The choice, to be made within a specified period, will be final. In other words, if a member opts not to join, he cannot change his mind later. These are methods to avoid adverse selection. Exits will be as per the conditions of the contract like on retirement or death or termination of membership from the group. Free cover limit: In order to reduce administrative expenses, insurance companies try to simplify the whole process of managing a group insurance based on the pre- criteria mentioned above. For this, they stipulate a certain maximum amount, up to which medical check-up of employees will not be required. This amount is known as free cover limit or no evidence limit ( as no medical evidence is generally called for) The insurance company for the employees of Makheja group provides a free cover limit of Rs 1,00,000. Hence employees will not be required to undergo medical check-up for insurance of upto Rs. 1,00,000, if they fulfil the criteria of “ actively at work “ and “ no medical leave for the last 6 months.(these definitions could can vary from one group to the other). The idea behind free cover limit is that the insurance company assumes that if the employee is working in an organisation, the employee is medically fit and able to work for the specified hours. Also employees generally have to undergo a medical check-up and provide medical fitness certificates before they join any organisation. Based on this notion the insurance companies grant group insurance upto free cover limit without a medical test. The amounts of free cover offered to the different groups can vary between groups and sub-groups. Facebook Page Facebook Group Telegram Group 100 Diagram 1: Group insurance policy for bank customers Premiums The premium payment in a group insurance policy is annual and is paid by the employer. However in some schemes, the employee and employer together can make the contribution. Based on as to who pays the premium, group insurance plans can be categorised into two types: Contributory insurance plan: in this plan the members also pay a part of the premium. In employer-employee group the employer deducts a certain amount of premium from the salaries of the employees. In a contributory insurance plan only the employees who wish to participate in the group insurance agree to allow deduction from salary and rest do not allow a deduction from salary and hence are not covered under the group insurance plan. Non-contributory insurance plan: in this plan the members do not contribute the premium. In a non-contributory employer – employee group, the employer pays the entire amount of premium. All the employees of the company get insurance cover under this plan. Facebook Page Facebook Group Telegram Group 101 Eligibility conditions in group insurance: The general eligibility conditions in group insurance are as follows: Formation of the group: Insurance cover must not be the prime motive for the formation or existence of the group. Minimum number: there should be a minimum number of members in a group generally 15 – 20 or more persons may be adequate for group insurance and there may be no maximum limit. Active at work: the employee should be active at work, on the date of insurance commencement i.e., employee should not be absent from duty due to sickness or any other reason for the last 6 months. The insurance cover will not be provided to such an employee till he joins duty. Probation: probationary period can range between 6 months to 1 year and depends upon the policy of the company. Some companies provide group insurance only to confirmed employees after completion of probation. Some companies provide group insurance only to full time employees. Some companies provide group insurance only to employees above a certain grade. Age limit: some companies have age limits for group insurance. It may be specified that an employee’s age should be less than 60 years for group insurance and he / she should have joined the organisation, before the age of 55. New employees: in a non-contributory scheme, all new employees who join the organisation become eligible for group insurance. In a contributory plan, there may be a waiting period (usually a month) for the employee, after which he can join the group insurance scheme. Cover limit: the beneficiary will not be able to choose the amount of insurance cover. It will be determined on a criterion which can be applied uniformly to all members of the group. This takes care of the risk of anti-selection. Administration: there has to be a single administrative organisation to be willing and able to act on behalf of the group. Normally this is the administrative officer of the employer or association. Facebook Page Facebook Group Telegram Group 102 Benefits of group insurance: Group insurance can be taken by an individual, who cannot afford to purchase individual plan due to a high premium. Administrative costs for the insurer are low, as a single policy needs to be issued and managed. Group insurance plan needs to be renewed each year. The employer or the insurance company can choose not to renew the contract if either of the two parties is not satisfied with the other. Free cover limit: no medical checkup is required up to a certain amount due to following reasons: As the employees are “actively at work”, the employees are considered healthy enough to work full time for the company. The company, before selecting an employee, generally insists on a medical checkup, which ensures the good health evaluation of the employee. Employees do not join an organisation for availing insurance cover and so the element of adverse selection is reduced. Note: Even if the individual is suffering from a certain medical condition that would not enable him to get an insurance policy individually, he is generally able to receive insurance under group insurance. It is therefore advantageous to the member of the group. Question 1 A group insurance plan in which employees have to pay a certain portion of the premium along with the employer is known as ________ Non-contributory insurance plan Contributory insurance plan Free insurance plan Deduction insurance plan Facebook Page Facebook Group Telegram Group 103 Learn about the different group insurance schemes. [Learning Outcome b] Group insurance schemes can be classified as: Group term insurance scheme Group gratuity scheme Group superannuation scheme Group leave encashment scheme Group insurance scheme in lieu of EDLI Social security schemes Diagram 2: Types of group insurance schemes: Facebook Page Facebook Group Telegram Group 104 Group Term Insurance Scheme Group term insurance scheme provides life insurance cover to a group of people as a single entity. Like individual term policy, the group term insurance scheme, provides death cover to the members. In the case of the death of a member the nominee is paid the sum assured under the scheme. In an employer – employee group, the employer will act as the principal policyholder and the employees are the members who will be insured under the scheme. Majority of the employees of an organisation are covered under the scheme. Any new employee, who joins thereafter, automatically becomes eligible for group insurance scheme depending on the terms and conditions of the organisation. Features of group term insurance scheme Master policy: A single master policy is issued to the employer. Certificate Of Insurance (COI): is issued to each member as a proof of the insurance cover provided to them. Sum assured: could be determined in different ways It could be the multiple of the annual salary of the employee It could depend on the designation or grade of the employee It could depend on the tenure of the employee in the organisation. If an employer chooses to provide the sum assured based on organisational hierarchy, then the sum assured will be derived on the basis of designation / grade of the employee and his salary. Hence higher the grade, higher will be the sum assured available as insurance cover. Premium: the premium is paid by the employer annually as a lump sum payment thereby keeping the administration costs low. The term of the scheme is only for one year. After the completion of each year the contract has to be renewed by the employer and insurance company. Premium charges may be revised annually at the time of renewal of the scheme. Premium payment for the group is considered as business expense of the employer in the books of accounts. Facebook Page Facebook Group Telegram Group 105 Premium pricing in group insurance is based on: Size of the group Age distribution of the group. Number of employees that have retired or have left the company. Number of new employees who have joined the company. Diagram 3: Premium pricing in group insurance In the case of a contributory scheme a certain percentage of the premium is paid by the employee and rest of the amount is paid by the employer. The amount of premium could be deducted from the employee’s salary. In a non-contributory scheme, the entire premium will be paid by the employer. Facebook Page Facebook Group Telegram Group 106 Eligibility: Groups: group term insurance is generally provided to employer – employee relationships. It could also be provided to professional association of doctors, lawyers etc. Members of banks, trade unions and weaker sections of the society are also eligible for group term insurance. Age: with regard to age, there may be a condition. For example, the age of the employee, to be eligible for group term insurance scheme should generally be between 18 to 60 years. Administration cost: the administrative cost for group insurance policy is low as compared to individual policies. Claim: when a claim arises, the details of the member along with a death certificate are required to be submitted. Claim settlement in group insurance is comparatively easy as compared to individual insurance. Free cover limit: no medical check-up is required due to free cover limit. The disadvantage is that the members who have adverse medical conditions will get the advantage of insurance, who otherwise would not have been eligible for individual insurance. Tax benefits: the amount paid as premium is treated as business expense, hence deductible under tax laws. Even death claims provided to nominees are tax free. Group Gratuity Scheme: According to the Payment of Gratuity Act 1972, any company having more than 10 employees, has to provide gratuity to its employees. Gratuity needs to be paid in the case of: the death of the employee disability of the employee on the resignation of the employee (subject to certain conditions) on the retirement of the employee Facebook Page Facebook Group Telegram Group 107 Diagram 4: Payment of gratuity Hence gratuity is a statutory requirement for which each employer has to make necessary arrangements. Liability for gratuity payment arises on a future date, but the funds need to be managed prior to the payment of gratuity. Companies can purchase Group Gratuity Scheme from insurance companies and can add provisions that enhance the value of the benefit available to their employees. Methods of gratuity payment ‘Pay- as –you- go’ method: gratuity could be paid by the company, when it falls due i.e. at the time of retirement, or the employee’s exit. Under this method the payment is made from the current revenues of the company. “Pay- as- you-go” method is not a prudent practice that should be followed by an employer as the gratuity payment depends largely on the amount of salary and number of years of service of an employee. An estimate of the future liabilities should be made and certain funds out of the revenues should be arranged for meeting these liabilities. In case a large number of employees decide to leave the company at the same time, it would be very difficult for the company to pay such a large amount under the “pay- as – you - go – method”. Facebook Page Facebook Group Telegram Group 108 Create an internal reserve: the company makes an estimate of the future liability of gratuity payments and reserves some amount for meeting these liabilities in future. The disadvantage of this method is that it just a mere accounting entry in the books of accounts and the company might use these funds for meeting its current requirements or some other contingency. To prevent the diversion of funds for any other purpose apart from the payment of gratuity, the management of the company will have to be very strict and disciplined. Setting up a Gratuity Fund: the company may set up a Gratuity Fund as an irrevocable trust. The trustees will manage the investments of the fund comprising the contributions, and make payments of gratuity from the fund. The trustees may or may not have the necessary expertise for investing the funds in the right avenues to earn high returns on the funds invested. Group Gratuity Scheme: in this method, a trust needs to be created by the company for gratuity payments to employees. The trust may enter into a Group Gratuity Scheme contract with an insurer. The funds reserved for the gratuity payments are handed over to the insurer for managing the gratuity portfolio. The insurer with its massive investment portfolio is in a better position to secure maximum benefits from the market, in terms of protection from fluctuations as well as better spread, than an individual trust with its relatively small portfolio can do. The benefit of group term insurance, given by an insurer helps the families of employees dying early get gratuity as if the employee had completed the full term of service. If Makheja group takes the group gratuity scheme from an insurance company, it will have following advantages: The funds for gratuity will be managed by the insurance company, which will have the necessary expertise and trained staff for managing the funds and secure good return on investments in various market securities and at the same time ensure the safety of the investment portfolio. The insurance company can use its actuarial skills to estimate future liabilities of the company. Actuaries have necessary expertise in the field, hence future liability estimates are bound to be more accurate. Facebook Page Facebook Group Telegram Group 109 The insurance company can also provide the benefit of group term insurance to employees in addition to gratuity. In case an employee dies during employment, the nominee / beneficiary will get gratuity payment as if the employee had completed the full term of service. This is an additional benefit provided by the insurance company to the employee. This will be extremely helpful to the dependents of the employee in case of his early death during employment, as the nominee will get payment for the full service. Eligibility: only those employees who are on direct payroll of the company come under the purview of Gratuity Act. The employee needs to complete 5 years of continuous service in the organisation, to be eligible for payment of gratuity. Gratuity calculation: gratuity is calculated based on the number of years of service completed by the employee and the last salary drawn. The employer has to pay 15 days salary for each completed year of service. Gratuity upto a certain limit are tax free. Gratuity is calculated as follows Gratuity = ((Basic + DA) X 15 days X number of years of service) 26 If there is an increase in years of service or the salary of the employee, the gratuity payment will also increase, thereby increasing the liability of the company. The company gets benefit in many ways, if they tie up with an insurance company for administration of these changes: The insurance company manages the funding for gratuity on cash accumulation basis. The contributions that are made by the company and the interest payment by the insurance company, both are irreversible. This fund will be available for settlement of claims as and when required. The contribution of the company towards gratuity fund is shown as business expense in the books of accounts. Hence the company gets tax benefit on the same. If at a time large number of employees leave the company, then the financial burden in terms of gratuity payment will not be much as the company would have already discharged its liabilities in the form of premium payment to the insurance company. Facebook Page Facebook Group Telegram Group 110 Group Superannuation Scheme Group Superannuation Scheme is a pension scheme, in which insurance companies provide superannuation at group level. Regular contribution is made by the employer towards the pension fund. After retirement this corpus can be used by the employee to take an annuity from the insurer. This will provide him with a regular stream of income after retirement. The employer can purchase a group superannuation scheme from an insurance company and entrust the management of pension fund to the insurance company. Types of group superannuation schemes Group superannuation scheme can be of two types: Defined contribution scheme: in this scheme, a certain amount is contributed regularly towards the pension fund. This amount from the pension fund is invested and managed by the insurance company. At retirement, the pension will depend upon the accumulated amount of the fund (amount invested and the return on amount invested). Hence in this case the amount of the pension that employee will receive after retirement cannot be predetermined in advance. Disadvantage of the defined contribution scheme is that an employer has to make sure that the funds are invested prudentially; otherwise there can be a loss on investment. Defined benefit scheme: in this scheme the pension that an employee will receive after retirement is predetermined. Certain amount of money is periodically deposited in a pension fund, which is invested and managed by the insurance company. But irrespective of the return received and the entire corpus of the fund, the pension that will be given to the employee will depend upon the last salary drawn by the employee. As the pension amount is known in advance and depends upon the salary and not on investments, hence this scheme is known as defined benefit scheme. Advantages of defined benefit scheme: The amount of pension fund could become quite substantial if the investments earn good return and there can be a surplus. The employer does not have to worry about the amount to be paid, as this is pre- determined and can be planned accordingly. Facebook Page Facebook Group Telegram Group 111 Disadvantages of the defined benefit scheme: If the investment gives lower return than expected then there can be a deficit and the burden of that will have to be borne by the employer. Types of pension: The pension options that are provided to employees by insurance company are as follows: Pension for life: in this case pension is paid throughout the employee’s life till his / her death. Pension for life with return of premiums: in this case the pension is paid throughout the life of the employee. The premiums paid are returned to the nominee after employee’s death. Pension for specified time period: in this case the employee gets a guaranteed pension for a specified term like 5, 10, 15 or 20 years and throughout his life thereafter. In case the employee dies within the specified time period then the nominee will be paid the pension for the remaining term. Pension for joint life: in this case the pension is paid to the employee. On his death, the pension is paid to the spouse Facebook Page Facebook Group Telegram Group 112 Diagram 5: Types of pension Eligibility: provision for pension is not a statutory requirement. Hence the management has a choice of including all the employees for superannuation scheme or to choose only the employees in selected hierarchies. Again here also the comments given under Eligibility of Group Gratuity scheme applicable. Benefits of Group Superannuation Scheme On retirement: of an employee, the corpus (contribution + interest) is used to provide pension to the employee. On death: in case there is a group insurance scheme along with the group superannuation scheme then on the death of the employee during service, a lump sum payment is made to the beneficiary. Expert help: insurance companies are responsible for ascertaining future liabilities of the employer, and to ensure that pensions are paid timely for a long period of time. They have the necessary expertise in management of funds as well. Hence the insurance company provides actuarial, legal, taxation and management expertise to the employer. Facebook Page Facebook Group Telegram Group 113 Change in the employer: an employee can choose to transfer funds to the superannuation scheme of the new employer or opt for immediate or deferred pension. Contribution: the contribution is made by the employer. But in some contributory schemes, both the employee and employer can contribute. Tax benefit: the amount contributed towards superannuation scheme is a business expense and hence the employer can claim deduction from taxable income for the same. Note: There are considerable tax advantages both to the employer and the employee in both, Group Gratuity & Group Pension arrangements. The tax advantages are conditional on these schemes being approved by the Income Tax Authorities. Group Leave Encashment Scheme As per the Companies Act 1956, companies have to provide leave encashment facility to the employees. Leave encashment is a lump sum amount that is payable to the employee at the time of his retirement / leaving the company for the leaves that he / she has accumulated during the tenure of service in the company. The leave encashment amount depends on the number of unused days of leave and the salary of the employee at the time of retirement / leaving the company. The company can get into a group leave encashment scheme arrangement with the insurer. The scheme enables funding of leave encashment. The insurance company can also provide a group term insurance cover along with this scheme which will result in a sum assured payable to the nominee in the case of the death of the employee during service. A small premium amount is collected along with the contribution for leave encashment fund. On the death of the employee, the nominee gets the amount of insurance cover along with the leave encashment amount. The liability of the employer under leave encashment increases with time as leave encashment is directly related to the designation and the salary of the employee. The group leave encashment scheme provides help to the employer in meeting this liability. A group term insurance cover may also be provided along with group leave encashment scheme to the employees. Group leave encashment scheme allows the employee to encash unused days of leave. For group leave encashment scheme, a running account is maintained by the insurance company, where all the contributions made by the employer are credited. Facebook Page Facebook Group Telegram Group 114 Benefits: Leave encashment amount is paid to employee from the funds maintained for meeting this liability, when he leaves / retires from the company or when he decides to encash the days of leave. In the case of the employee’s death, the beneficiary will be paid a lumpsum insurance cover. The premium paid towards leave encashment scheme is treated as a business expense and hence the employer can claim deduction from taxable income for the same. Employees’ Deposit Linked Insurance (EDLI) Scheme If a company is covered under the Employee Provident Fund Scheme under the Employees Provident Fund and Miscellaneous Provisions Act 1952, there is a statutory requirement that, the company has to contribute towards Employees’ Deposit Linked Insurance (EDLI) Scheme. A contribution of 0.51% of each employee’s monthly salary is made by the employer for EDLI. In EDLI the insurance cover will be dependent on the balance in provident fund account. EDLI has the provision of making payment to nominees in the case of employee’s death. The amount payable will be equal to the average balance amount in the employee provident fund during the past 12 months till his death. If the average balance exceeds Rs. 35,000 then the insurance cover will be calculated as below: Rs 35,000 + 25% (balance above Rs 35,000) The insurance cover cannot exceed Rs. 60,000. Hence, if the duration of service and the salary of the employee are not significant, the insurance cover will be very limited; the benefit to the nominee will be inadequate. Hence group insurance scheme in lieu of EDLI is an alternative plan offered by an insurance company. Group Insurance Scheme in lieu of EDLI Eligibility: The employer has to claim exemption from the EDLI scheme from the Central Provident Fund Commissioner to provide insurance benefit though the alterative scheme “Group Insurance Scheme in lieu of EDLI”. Facebook Page Facebook Group Telegram Group 115 Benefits: Employees get high insurance cover as compared to EDLI Lower administration cost on part of the employer Easy settlement of claim as insurance company requires only the death certificate Premium paid is treated as business expense and hence the employer gets tax benefit on it. Social Security Scheme Social security is a concern in all countries throughout the world, although the dimensions may vary considerably. In some countries, the expenses of the elderly persons are borne by the State as a social measure. In some countries, medical care is free. Most of the funds are generated through levies and taxation. In India, group term insurance is a made available to poorer sections of society. In case of death, say a sum of Rs 5000/- is paid to the dependents of the deceased. The amount paid is double (Rs 10,000/-) is paid to the dependents, if the death is due to an accident. According to the directives of the Central Government a Social Security Fund was created in the fiscal year 1998-99. This fund was conceived by LIC, with an aim, to provide insurance cover to the economically weaker sections of the society. LIC maintains it with half the amount drawn from the social security fund while the rest of the amount is collected from designated nodal agencies. Nodal agency refers to a State Government department which is concerned with the welfare of a vocation group, a welfare fund or society, village panchayat, NGO, self-help group etc. The Indian Government has approved various occupations for the social security scheme. Some of the occupations which come under the purview of social security scheme are: Rickshaw pullers Handloom workers Artisans Tailors Barbers Masons Co-operative milk producers Landless agricultural workers etc. Social Security Scheme offers life protection to weaker sections of the society. Facebook Page Facebook Group Telegram Group 116 Question 2 In a pension scheme when the pension amount is known beforehand it is known as ___________ Guaranteed benefit pension scheme Group superannuation scheme Defined contribution scheme Defined benefit scheme. Summary Group insurance provides insurance cover to a group of people under one single master policy. The individuals who get insurance cover under the policy are referred as ‘members’ of the group insurance scheme. The employees who get covered under group insurance are issued certificate of insurance. Medical checkup of employees is not necessary if the insurance cover is up to free cover limit. If the employer deducts an amount of premium from the salaries of employees, it is known as contributory insurance plan. In a non-contributory plan the employer pays the entire amount of premium. Insurance companies offer Group Gratuity Schemes, Group Superannuation Schemes and Group Leave Encashment Schemes to employers. Some important terms / definitions you have learnt in this chapter Free cover limit Master policy Certificate of insurance Nodal agency Facebook Page Facebook Group Telegram Group 117 Answers to Test Yourself Answer to TY 1 The correct answer is B A group insurance plan in which employees have to pay a certain portion of the premium along with the employer is known as contributory insurance plan. Answer to TY 2 The correct answer is D When the pension amount of the employee depends on the return on the investment it is known as defined benefit plan Self-Examination Questions Question 1 Free cover limit is __________ The stipulated amount till which the insurance cover is provided for free The maximum amount till which the cover is provided by the insurance companies. The stipulated amount by the insurance company till which the medical checkup is essential The stipulated amount by the insurance company till which the medical checkup is not required Question 2 Under which method do the employers pay gratuity to the employee, when he leaves the company, from the current year revenues? Internal trust Pay as you go method Internal reserve method Group gratuity scheme Facebook Page Facebook Group Telegram Group 118 Question 3 If the investment gives lower return than expected, then there can be a deficit and the burden of that will have to be borne by the _________ employer Insurance company The Government of India None of the above Question 4 Under the Group Term Insurance Scheme, can the employer claim tax benefits for the premium paid for the employees? Yes because the premium paid is a business expense No because the premium is paid for the employee and hence the employee can claim tax benefit Both the employee and employer can claim tax benefits equally None of the above Question 5 EDLI stands for __________ Employers’ dividend liability insurance Employees’ deposit liability insurance Employees’ deposit linked insurance Employees’ dividend linked insurance Answer to Self-Examination Questions Answer to SEQ 1 The correct answer is D Free cover limit is the amount stipulated by the insurance company till which a medical checkup is not required Facebook Page Facebook Group Telegram Group 119 Answer to SEQ 2 The correct answer is B Under the pay as you go method, the employers pay gratuity to the employee when he leaves the company, from the current year revenues. Answer to SEQ 3 The correct answer is A If the investment gives lower return than expected, then there can be a deficit and the burden of that will have to borne by the employer Answer to SEQ 4 The correct answer is A Under Group Term Insurance Scheme the employer claims tax benefits for premium paid for the employees, asthe premium paid is a business expense. Answer to SEQ 5 The correct answer is C EDLI stands for Employees’ deposit linked insurance