Employer Employee Insurance

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. In this way

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 insurance 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. 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 term life insurance, the other hand, the employee-employer structure is used for any kind of insurance plan. In a keyman 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:

Employer - Employee Scheme - Benefits

Employer - Employee Scheme - Tax Benefits

In the employer-employee scheme, the employer pays the premium for the 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 Assured is the Employee

The proposal form for someone else’s life 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.

Type B – When the Employee is Life Assured and Proposer

The proposal for life insurance for self should be used

The employee is the owner without having any restrictions.

No requirement of policy assignment through the employer.