Group Insurance

Bachelor of Commerce
Banking & Insurance
Semester VI
2015-2016
Submitted by
Mast. Gurudatta Juvekar
Roll No: 30
Parle TilakVidyalaya Associations
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

SR.NO

DESCRIPTION

PAGE

1
2
3
4

CHAPTER I
CHAPTER II
CHAPTER III
CHAPTER IV

NO
13
49
1034
3374

5
6

CHAPTER V
BIBLIOGRAPHY

7577
78

LIST OF DIAGRAMS
DIAGRAM

TOPICS

PAGE NO

NO
4.1

GROUP SCHEMES

36

4.2

SOCIAL SECURITY

37

SCHEMES

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

CORPORATION OF INDIA.

INSURANCE

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. Thats 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.

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
to a high rate of bankruptcies and liquidation of life
5

insurance companies in India. This had adversely

affected the faith of the general public in the utility of
obtaining life cover.
The Life Insurance Act and the Provident Fund Act
were passed in 1912, providing the first regulatory
mechanisms in the Life Insurance industry. The Indian
Insurance Companies Act of 1928 authorized the
government to obtain statistical information from
companies operating in both life and non-life insurance
areas. The subsequent Insurance Act of 1938 brought
stricter state control over an industry that had seen
several financially unsound ventures fail. A bill was
also introduced in the Legislative Assembly in 1944 to
nationalize the insurance industry.

Nationalization:
6

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.

Current status:
7

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.

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."

CHAPTER 3
THEORETICAL VIEW
Industrial Revolution became major source for
spreading earlier the concept of group insurance.
Majority of the factories employed huge machineries,
and working with them more often led to accidents
resulting in injuries, disablements, and deaths. Hence, a
need for social protection was felt by individuals who
suffered from the occupational hazards and accidents.
This need for providing variety of benefits on a cost
effective scale gave a boost to group insurance. Low
cost and liberal underwriting norms unlike those
followed in the individual insurance led to phenomenal
growth of the group insurance. Hence, those individuals
who where denied individual insurance could get
insurance protection on group basis.
With the passage of time, different types of group
insurance policies based on combination of benefits
10

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
employee benefit package. Group insurance has indeed

11

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/ones
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 noncontributory 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 longterm 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 days 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
insureds 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 governmentmandated 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
service. This Act

was

later

renamed

as
28

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 employees
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

Group Term
Insurance Sche
mes
Group Insurance
Scheme in Lieu
of EDLI

Group Critical Illne

ss Rider

Group
Mortgage
Group Gratuity

Group
Schemes

Redemption
Assurance
Scheme

Scheme

Group Super
Group Leave En
cashment Schem
e

Annuation
Group Savings

Scheme

Linked
Insurance
Scheme

DIAGRAM NO: 4.1

Different types of Social Security Scheme are as

follows:-

36

Social Security
Schemes

JanaShree Bima

Shiksha Sahayog

Aam Admi Bima

Yojana

Yojana

Yojana

DIAGRAM NO: 4.2

1)

Group Term Insurance Schemes:

Nature of the Scheme:

Group Insurance Scheme is meant to provide life
insurance

protection

to

groups

of

people.

Administration of the scheme is on group basis

and cost is low. Under Group (Term) Insurance
Scheme, life insurance cover is allowed to all the
members of a group subject to some simple
insurability conditions without insisting upon any
37

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,

contributory

i.e.

the

the

scheme

members

may
may

be
also

contribute.
2. DOUBLE ACCIDENT BENEFIT:
Double Accident Benefit, i.e. payment of double
the sum assured on death due to accident
(without permanent disability benefit), may be
allowed under Group Insurance Schemes for an
extra premium.
39

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 employeremployee groups the insurability condition is
that the member should not be absent on ground
of sickness on the entry date. For all nonemployer-employee Group Schemes the basic
insurability condition is that the member should
be in good health on the date of entry.
4. ADMINISTRATION OF THE SCHEME:
At the commencement and thereafter on each
Annual Renewal Date, the Group Policyholder
will have to send all the member's data (and
particulars of the new entrants from time to
time) to the P & GS unit of LIC. Detailed

40

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.

41

 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
42

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

43

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:

44

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:
45

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:

46

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:

47

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.
48

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.

49

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.

1)

BENEFITS:

ON RETIREMENT:
50

On

Retirement

of

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:

51

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
52

discriminate between the employees and thus

extends the scheme uniformly).

The

CONTRIBUTION:
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:

53

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
introduced

by

employers

Scheme
provided

can

be

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.

54

PREMIUM:

It is decided on the basis of Group size and the

occupation

of

the

group.

Premium

has

two

components i.e. Risk Premium and Savings Premium.

Risk Premium is utilized to offer life cover and the
Savings Premium is accumulated in members
account.
ACCIDENT BENEFIT:

Double accident benefit can be allowed to the extent

of the Sum Assured for an extra Premium.
INTEREST ON

SAVINGS :

The present rate of interest allowed on saving portion

of premium is 8% compounding yearly.

ELIGIBILITY TO JOIN THE SCHEME:

Any employee irrespective of his present state of
health is eligible to join the scheme subject to certain
55

conditions. The only insurability condition is that the

employee should not be absent on medical ground on
the date of commencement of the scheme. All
employees who have not crossed the retirement 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:

56

End-of-the-year leave encashment facility available

to employees can be a huge liability to the company.
So can be Medical Leave Encashment, if provided
for. To meet this need of entrepreneurs and
businesses, LIC has introduced Group Leave
Encashment Scheme. Just pay a yearly premium,
fund your leave encashment liability and let LIC take
care of your worries.

The Features:
Group Leave Encashment Schemes (GLES) of LIC
helps the employers in funding of their lave
encashment liability.
The salient features of the scheme are as follows: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
57

company. The company will contribute as per the

advice of LIC.
2. A uniform life cover per employee or graded cover
will be provided under One Year Renewable Group
Term Assurance Plan of LIC. A small term
insurance premium will be charged in addition to
contributions for funding.
3. A Running Account will be maintained under the
scheme and the contributions (excluding term
assurance premium) will be credited to this account
and all claims except term assurance cover will be
settled out of the Running Account. Interest at the
rate declared by LIC from time to time will be
credited to the Running Account at the end of the
financial year.

Benefits:

58

1. On the exit of an employee or encashment of leaves

during the service the Leave Encashment amount
will be paid from the Fund of the scheme
maintained with LIC.
2. On the death of an employee, in addition to his /
her leave encashment benefit, his/her family will be
entitled to the amount of Insurance Cover, which
will be tax-free.

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.

59

7)

Group Mortgage Redemption Assurance

Scheme :
Group Mortgage Redemption Assurance Scheme, is
a Group Insurance Scheme for the borrowers of
Housing/Vehicle Loans from Financial Institutions
where Loan is recovered under EMI. Under the
Scheme, the premium is payable in a single
installment

covering

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.

60

Any borrower may become member of this scheme.

The minimum term of assurance is 3 years. Existing
Borrowers can join the scheme with certain
conditions within 6 months of the commencement of
scheme.
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
61

Superannuation. The Benefit will not be extended to

spouses or dependants. Only full time permanent
employees who are actively at work will be eligible
for Critical Illness cover. The relevant premium is to
be paid by the Group Policyholder.

FEATURES:
1. The Group critical illness rider benefit to
employees is given as an add on benefit to the
Group policy which has an element of life
cover.
2. The Group Critical Illness rider allowable for
each member shall be a minimum of 20 % of
sum assured under the base plan and shall not
exceed 100% of the sum assured under the
base plan subject to minimum of Rs. 50
Thousands and maximum of Rs 20 lac per
member.
62

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 :

63

1.

The Critical Illness Accelerated benefit is

payable upon the first incidence of any of the 8
specified diseases and evidenced as per the
diagnostic criteria specified. The rider shall
terminate on payment of the Critical Illness benefit.

2.

The Group Critical illness (Accelerated)

Benefit pays a lump sum amount as a percentage of
Sum assured out of 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

64

scheme on which the rider is opted for) benefits as

under shall become payable :

A benefit equal to base sum assured if

no critical illness benefit is payable or has been
paid earlier.

If critical illness benefit is payable or

already paid, the benefit is reduced by the
amount of critical illness benefit payable or
already paid. In other words, the difference
between the base sum assured and the critical
illness benefit already paid is payable on death.

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
65

occurred before the individual was covered or

whether the insured was covered by us or another
insurer.
3. Any disease occurring within 90 days of the start
of the coverage for each member of the scheme.
(I.e. during the waiting period).
4. No payment will be made for any claim directly
or indirectly caused by, based on, arising out of, or
howsoever, to any Critical Illness for which care,
treatment, or advice was recommended by or
received from a Physician, or which first
manifested itself or was contracted before the start
of the policy period, or for which claim has or
could have been made under any earlier policy.
5. Any congenital condition.

66

6.

Alcohol or solvent abuse or taking of drugs,

narcotics or psychotropic substances unless taken
in accordance with the lawful directions and
prescription

of

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

67

passenger of a recognized airline on regular routes

and on a scheduled timetable.
11. Participation by the member of the scheme in a
criminal or unlawful act.
12.Engaging or taking part in professional sport(s) or
any hazardous pursuits, including but not limited
to , diving or riding or any kind of race,
underwater activities involving the

use

breathing

hunting,

apparatus

or

not,

of

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.

68

15.Existing diseases are not covered.

SOCIAL SECURITY SCHEMES:

JanaShree Bima Yojana (JBY):

1)

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:

69

A State

Government

concerned

with

the

vocation/occupation
Society,

Village

Department
welfare

group,

of

which
any

Welfare

is

such
Fund/

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.
70

 BENEFIT:
Scholarship of Rs 300/- per quarter per child will
be paid for maximum period of 4 years. The benefit
is restricted to two children per member (family)
only.

PREMIUM:
No premium is charged for the scholarship.

HOW TO CLAIM SCHOLARSHIP:

The Nodal Agency will identify the students. The
member of Janashree Bima Yojana whose child is
eligible for scholarship has to fill up an application
form (available with Nodal Agency) and submit to
the Nodal Agency. The applications duly filled up
and certified will be sent along with the list of the
beneficiary students by the Nodal Agency to the
concerned LIC, P&GS Unit for disbursement of
scholarship/s. The scholarship/s will be disbursed
71

to the beneficiary students through the concerned

Nodal

Agency.

As only a limited number of beneficiaries will be

provided scholarship under the scheme, the
selection for eligible students will be made on the
basis

of

poorest

of

the

poor.

The scheme will be administered through Pension

and Group Schemes Department of LIC of India.
Aam Admi Bima Yojana :

3)

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

72

Governments and administered by LIC brings a ray of

hope and smile to these households.

NODAL AGENCY :
The Nodal Agency shall mean the State / Union
Territory Government appointed to administer the
scheme.
The Nodal Agency shall act for and on behalf of
the insured members in all matters relating to the
Scheme.

IDENTIFICATION OF BENEFICIARIES:
The State / Union Territory Government in
consultation with the Panchayats will identify the
persons to be covered under the scheme. All the
members will be provided with an identity card by
LIC with an unique identity number.

ELIGIBILITY:

73

The member should be aged between 18 and 59

years.
The member should be the head of the family or
one earning member in the family of rural landless
household.

AGE PROOF:

Ration Card

Extract from Birth Certificate

Extract from School Certificate.

Voters list

Identity Card
In case of doubt, a certificate from Primary Health

Centre can
be accepted as authentic proof of age.

74

CHAPTER 5
CONCLUSION

Key to a successful business is keeping the

employees

motivated.

Happy

and

secured

employees work better, which in turn reduces the

employers 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

Independence.

The

observed
present

form

only

after

of

Group

Insurance originated in the United Stated of

America in the early 19th century.
75

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 employees 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 Socioeconomic 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.

77

BIBLIOGRAPHY:
1)GROUP INSURANCE
- THE ICFAI UNIVERSITY

WEBLIOGRAPHY:
1) www.ask.com
2) www.licindia.in

78