Employer Employee Insurance Scheme

Employer Employee Insurance Scheme


    What is Employer Employee Insurance Scheme?

    Under Employer Employee Insurance Scheme, the organization/ employee purchases life insurance on the life of the Employee. In case of any unfortunate circumstance leading to the death of the employee during the tenure of employment, the company receives the maturity proceeds from the insurance company and transfer the proceeds to the family members of the employee.

    It is a unique opportunity for the employer to reward his/her employee and get benefitted at the same time. In the Employer-Employee Insurance arrangement, both employers, as well as employees, are benefited. 

    How Employer Employee insurance works?

    The employer can purchase an insurance policy for the employee in either of the two arrangements given below.

    TYPE A: Employer is the proposer and employee is the life assured.

    TYPE B: Employee is both the proposer and life insured.

    The premium is paid by the employer in TYPE A until the policy is assigned to the employee (usually within a pre-specified period). The employer can continue the premium payment even after the assignment if he wishes. Otherwise, the premium payment has to be continued by the employee.

    The maturity amount or death claim shall be available to the employee/nominee if the policy has been assigned to the employee by the employer. If the policy has not been assigned, then the maturity amount/death claim shall be paid to the employer who will then transfer it to the employee/nominee as the case may be.

    Under TYPE B question of assignment does not arise since the employee is both the proposer and life insured. Since the employer does not have any control over the situation in the TYPE B arrangement, usually TYPE A is the preferred Employer Employee Insurance Arrangement.

    Also Read: What is Keyman Insurance | Key Person Insurance?

    Eligibility Criteria

    • The employer-employee relations should be substantially established.

    • All individual insurance plans are available under this scheme.

    • The amount of insurance coverage will depend upon the age and income of the employee.

    • The premium payable by the employer will also be considered as income for the purpose of deciding the coverage of insurance.

    • The employer has to assign the policy in favor of the employee within a reasonable time.

    Requirements

    Medical requirements

    • Depends upon age and sum assured of the employee. 

    Financial requirements

    • Salary/Pay Slips /Form 16, ITR of Employees.

    • Copy of MOA and AOA (for companies), partnership Deed (for partnership firms)

    • Board Resolution/Declaration by the organization.

    • KYC of both Employer and Employee.

    TAX Benefits.

    Before Assignment

    The employer is the absolute owner of the policy. premium paid is deductible expenses for the organization n/s 37(1) of the Income Tax Act. Section 80C benefit shall not be available to the employee on the premium paid by the employer. Maturity proceeds/Death claims received by the employee shall be included in the total business income of the employer in the year of receipt.

    After Assignment

    After assigning to an employee he/she becomes the owner of the policy. The sum total of the premium paid by the employer before the assignment is treated as a prerequisite as per Section 17(2)(V) of the Income Tax Act and will be added to the taxable income of the employee in the financial year.

    Premium paid by the employer (after assignment) is treated as a prerequisite in the financial year and will be taxed accordingly. Employees can claim a deduction u/s 80C even if the premium is paid by the employer.

    Also Read: Whole Life Insurance Quotes Online.

    Benefits of Employer Employee Insurance

    Benefits to Employee 

    • Offers a sense of financial security for the employees.

    • Will provide income to the family in case of premature death

    • The benefits of this policy can be used as funds for retirement.

    • The employee gets benefits that are tax-free. They enjoy the benefits of this cover without paying for the same.

    Benefits to Employers 

    • This kind of arrangement helps in developing employees' loyalty.

    • Minimizes employee attrition rate. Tax rebates on premium paid.

    • Attractive option to retain talented employees.

    • Additional time and financial costs incurred in recruitment and training new employees can be avoided by retaining current employees.

    • The output of employees increases significantly where fringe benefits like these are provided.

    Frequently Asked Questions

    What if an employee quits the job before assignment?

    There will be two options for the employee he/she can either surrender the policy and get surrendered value or absolutely assign the policy to the employee as part of his terminal benefits.

    What if an employee died before the assignment?

    The death benefit has to be passed to the nominee of the employee unless it is specifically mentioned in the agreement.

    What if Employer-Employee Policy matures without being assigned to the employee?

    If the EEP matures without assignment of the employee then maturity proceeds shall be received by the company m it will be treated as income of the company and will be taxed according and tax shall be deducted at source.

    What if an employee quits their job after an assignment? 

    The employee is the owner of the policy and he should pay the future premiums (if any) and can enjoy the maturity proceedings. The maturity amount will be tax-free u/s 10(10D) of the Income Tax Act.

    What if the employee dies after assignment?

    If in case the employee dies after assignment Death Benefit shall be paid to the nominee of the employee and shall be tax-free u/s 10(10D) of the Income Tax Act.

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