Employer Employee Insurance Scheme

What is an Employer Employee Insurance Scheme?

An employer-employee insurance scheme is a health coverage option bought by employers for their workforce. This policy is a valuable employee benefit, providing financial security during medical emergencies. It not only helps retain current staff but also attracts new talent, supporting business growth.

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The employee employer insurance policy provides financial protection not only for employees but also extends to cover their family members. The scope of coverage varies, encompassing accident-related injuries, medical emergencies, hospitalization costs, and other specified expenses. In essence, Employee Employer Insurance serves as a means to provide a financial safety net for the health and well-being of the entire team.

Employer-Employee Scheme – Eligibility

For eligibility under employee employer insurance scheme, the employer must be: 

• Sole proprietorships
• Corporates, corporations, and conglomerates
• Partnership firms
• Public and private companies
• NRIs working at MNCs registered in India
• MSMEs
• Companies facing financial difficulties and losses

Employer-Employee Scheme – Benefits for Employer

The benefits that an employer gets with the employee insurance scheme are as follows:

• Employee Well-being: Providing insurance coverage secures employees financially during health uncertainties, fostering a positive relationship between employers and employees and boosting workforce motivation.
• Retention Boost: Health coverage makes employees feel cared for, reducing the likelihood of them seeking opportunities elsewhere. This contributes to lowering the attrition rate within the organization.
• Talent Attraction: Showcasing Employee Health Insurance as a significant perk can attract potential employees, as many candidates prioritize good medical coverage when choosing a workplace.
• Enhanced Productivity: Premium Employee Health Insurance Policies often include preventive healthcare support, such as fitness apps and medicine discounts. These initiatives can lead to improved employee lifestyles and increased long-term productivity.
• Tax Benefits: Employers can enjoy tax exemption by declaring the premium paid for the Employer-employee Policy as a business expense.

Employer-Employee Scheme – Benefits for Employees

• Medical Coverage: Employees included in the policy receive insurance coverage for medical emergencies and illnesses, subject to the specified terms and conditions.
• Family Coverage: Employer-employee Insurance might encompass the family members of an employee, such as dependent parents, children, and spouse, contingent on the terms outlined in the policy.
• Accident Protection: The GPA policy which is an add-on that the employer offers to the employees to financially protect them against injuries or death resulting from accidents. In the unfortunate event of accidental death, the nominated family member receives the compensation amount.
• Cashless Services: Covered employees can access cashless services at any hospital within the insurer’s network. This convenient service allows policyholders to receive healthcare without upfront payment, as the settlement occurs directly between the insurer and the hospital.
• No Waiting Period: Employee health insurance scheme does not have waiting period and provides coverage for ailments from the day 1 of the policy issuance.

How does Employer Employee Scheme Work?

The Employer-Employee Insurance Scheme provides comprehensive health coverage to all employees in the organization. Employers buy group life or health insurance plans for their employees without deducting any amount from their salaries. This means employees and their families get health insurance without having to pay for it themselves.

Think of it as part of your total compensation package (CTC), with the employer covering the premium costs. Employees enjoy the benefits of medical or term insurance without any deductions from their paychecks. Additionally, many companies offer extra benefits like super top-up and personal accident insurance under their group policy.

For instance, the following summarizes the common plan types typically offered as part of employee insurance scheme coverage in India:

• Group Cover: This includes a comprehensive group medical health insurance plan, offering coverage to all members or teams within the company.
• Group Term Life: It provides term life insurance coverage to employees through a single policy.
• Group Personal Accident: This scheme safeguards employees against accidental injuries, covering temporary total, permanent partial, or full disabilities.
• Super Top-up: An optional rider that enhances the sum insured beyond the basic medical plan.

Employer-Employee Scheme - Tax Benefits

From the employer's perspective, Section 37(1) of the Income Tax Act, 1961, allows organizations to apply for tax exemptions on premiums paid towards employer-employee insurance. These premiums can be declared as business expenses, reducing taxable profits and increasing monetary benefits. Moreover, corporate-sponsored employee insurance can help reduce attrition rates, contributing to a more stable and satisfied workforce.

 From the employee's perspective, the Employer-Employee Insurance Scheme offers multiple benefits, including coverage for group term life, personal accident, and group medical insurance plans. Employees and their families receive this coverage free of cost. While the employer pays the premium, employees can claim tax exemption under Section 80C. Additionally, the maturity proceeds are tax-exempt under Section 10(10D) of the Income Tax Act, providing financial protection to family members in the event of the employee's death.

Employer-Employee Scheme – Types of Arrangements

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

Type A: Proposer is the Employer, and the Employee is the Life Assured

• Utilize proposal form number 340, designed for insuring someone else's life, especially from LIC.
• The policy must be allocated to the employee (policyholder) in accordance with the agreement between the employer and the employee.
• The proposal should be signed by the person authorized through a resolution.
• Submission of the company's accounts book or IT orders for the last three years is necessary to demonstrate profitability, as the premium liability lies with the organization.
• A separate letter outlining the restrictions and the intended purpose of the insurance, as desired by the employer, should be obtained.
• The employer commits to fully assigning the insurance policy to the employee after a specific period of continued employment, typically ranging from three to five years.
• The employer can place limitations on the employee to discourage them from obtaining loans or surrendering the policy.
• Even after the predetermined ownership period, the employer may continue paying premiums to avail tax advantages. If an employee leaves the job within the mentioned period, the employer can either surrender the insurance plan for its surrender value or completely assign it to the employee as part of terminal benefits.

Type B: Employee is both the Life Assured and Proposer

• Use the proposal for life insurance for oneself, such as form number 300 when obtained from LIC.
• The employee acts as the owner without any imposed restrictions.
• No requirement for policy assignment through the employer.

Conclusion

The Employer-Employee Insurance Scheme is a crucial component for businesses, providing financial support to employees during health emergencies and offering a range of benefits for both employers and the workforce. The scheme enhances employee-employer relationships, aids in retention, attracts talent, and promotes overall well-being. With tax benefits for both employers and employees, customizable coverage options, and eligibility for various types of businesses, the Employer-Employee Insurance Scheme emerges as a valuable and versatile tool in fostering a healthy and secure work environment.

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