What is Employer Employee Insurance Scheme?

Employer-employee insurance provides a unique opportunity to the employer to give rewards to its employees and in return get benefits at the same time.

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*Premium starting from ₹110/Employee/Month for ₹1 Lac Sum Insured covering Health & Wellness Needs (excluding GST)
#Premium may vary on the basis of coverage type & add-ons
**All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C Apply

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Disclaimer: The above plans and premiums are for 1 Lakh sum per life per month covering Health and Wellness needs of 7 Employees, 5 Spouse & 2 Kids below 35 years of age. The premium is inclusive of GST and do not cover PEDs & Maternity. Standard T&C Apply PolicyBazaar does not rate, endorse or recommend any particular insurer or insurance product offered by the insurer.

Employer Employee Insurance

An employer-employee insurance policy is one in which the employer or company purchases insurance policy and the beneficiary is its employees. It is a benefit provided by an organization to its employees. Presently, this kind of group insurance scheme is most relevant because it works as a tool to retain old employees and attract new employees. This insurance policy is as well relevant for companies that are run by promoters. This is because the promoter likes his/her expenses of insurance paid by the company.

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It is very common to get confused between employer-employee insurance and keyman. However, the two terms are completely different. On one hand, where keyman is only a group term life insurance, the other hand, the employee-employer structure is used for any kind of insurance plan. In a keyman insurance policy, the benefit of insurance is paid on the death to the company and it attracts income tax. Whereas, in an employer-employee policy, the advantages are paid to the employees, which are completely free of tax.

Employer-Employee Scheme – Eligibility

The eligibility for this scheme is as follows:

  • Any company, proprietary company, or even a partnership firm having at least five employees is eligible to take this policy for its employees under the scheme.
  • The employee’s combined shareholding and her/his relatives like children, spouse, in-laws, siblings, parents in the company of the employer should not be more than 51%.
  • There has to be a relationship between employees and employers as the employee gets a salary for his/her services given to the employer.
  • All modes and plans are allowed for this insurance scheme.
  • Even a company that is in loss can get the advantage of this insurance scheme.
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Employer-Employee Scheme – Benefits for Employer

The benefits that an employer gets with the E-E Insurance scheme are as follows:

  • The attrition rate of the employees goes down with this scheme.
  • The loyalty of the employees towards their employer increases as they get the feel of being more honored and secure with this scheme.
  • The employer gets tax exemption for the premiums it has paid for this scheme under section 37(1) of the IT Act under the business expenses of the company.
  • The tax exemption u/s 37(1) may bring monetary advantages to the organization.

Employer-Employee Scheme – Benefits for Employees

  • This insurance scheme is a kind of reward program for the employees and hence it raises the morale of the employees.
  • The maturity proceeds are available for the employees only.
  • Even though the amount of premium is paid by the employer, the employee can claim exemption of the income tax u/s 80C of the IT Act.
  • The complete maturity proceedings are free of tax under section 10D of the IT Act.
  • The insurance plan can be chosen in a way that it offers security to the employees against accident, illness, disability, and untimely death.
  • In case of death, the death claim is paid to the nominee of the employee (whom the employee has nominated).
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Employer-Employee Scheme - Tax Benefits

In the employer-employee scheme, the employer pays the premium for the group mediclaim policy. The employer submits the duly filled and signed the assignment form an employee's name to the insurance provider. Every employee fills the standard proposal form. The premium that the employer pays is a prerequisite that is in the hands of employees, and therefore employees can claim tax exemption under the IT Act. The premium that is paid by the employer is considered as its business expense and hence it attracts tax rebates.

Employer-Employee Scheme – Types of Arrangements

Under the employer-employee scheme, two types of arrangements are possible:

  • Type A: The proposer under this scheme is the employer and the employee is the Life Assured.
  • Type B: Under this type of arrangement, the employee is the proposer and Life Assured both.

In these two types, the insurance works in two different ways. Let us see this:

Type A – When the Proposer is the Employer and the Life Insured is Employee

  • The proposal form for someone else’s life should be used. For LIC, form number 340 should be used.
  • The policy has to be assigned to the policyholder (employee) according to the agreement between the employee and employer.
  • The proposal has to be signed by the person who is has got authorization from the resolution.
  • Accounts book or IT orders for the last three years of the company for proving the profitability is required. (As the liability of the premium lies with the organization only)
  • A separate letter that mentions the 'restrictions' and 'object of insurance' that the employer wants to impose should be obtained.
  • The employer must undertake to assign the insurance policy to its employee completely when the employee continues to be in the employment with the organization for a specific period mentioned by the employer. A usual period for the same is three to five years.
  • The organization may impose the restrictions on the employee for preventing him/her from taking or surrendering loans against the policy.

The employer may continue to pay the premiums even after the predefined ownership period and get the tax advantages. If an employee quits his/her job within the mentioned period, then the employer may either surrender the insurance plan for the surrender value to the insurance provider or completely assign this insurance plan to the employee as a part of his/her terminal advantages.

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Type B – When the Employee is Life Assured and Proposer

  • The proposal for life insurance for self should be used (When taken from LIC, then form number 300 should be used).
  • The employee is the owner without having any restrictions.
  • No requirement of policy assignment through the employer.

Summing it Up!

In this way, the employer-employee insurance policy provides benefits to both employer and employee. In the current time, this policy is most relevant as it attracts and retains employees of an organization.

Written By: PolicyBazaar - Updated: 08 September 2022
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