LIC of India plan Introduction

• Group Schemes of LIC of India
  
  The concept of individual insurance is well known to all of us. The other wheel that drives along the organizations is the group Schemes. However, most of us do not have a very clear picture of the products portfolio under group shemes. Let us be familiar with the schemes offered by the p& GS wing and the associated benefits.
  
  The pre-requisites for a group schemes
  
  
• Target is a group of Individuals
  
• The group should be formed for a purpose other than for taking insurance; e.g. Employer-Employee, Creditor- Debtor, etc.
  
• There should be a nodal agency that will be the Master Policy Holder and will act on behalf of all insured members
  
• The grop should not be a closed group i.e. there should be addition of new entrants in the group every year.
  
• At least 75% of the group members must be covered under the scheme with all new entrants, necessarily to be members of the scheme.
  
  Group Insurance vis-à-vis individual Insurance
  
  
• There is no individual underwriting-the underwriting is for the group of lives.
  
• Persons covered are not party to the contract as in individual insurance.
  
• Individual policies are not issued- Single Master policy is issued for the group.
  
• Benefits are not dependent on individual choice but are based on some formula generally depending on salary, service or catogarization.
  
• Simple insurability condition of not being absent on health ground on the date of effecting insurance- no individual health declaration required except GMRA scheme.
  
• No evidence limit (of free cover Limit) for each type of schemes or very little individual underwriting requirements.
  
• Covers provided are generally One year Renewable Group Term Assurance as against equated Installment policies offered by Individual assurance.
  
• Premiums may vary from year to year depending on the claim experience and age proof of the group
  
• There is no standard premium table applicable to all groups. There are separate Premiums tables which are applicable depending on the group profile and risk propensity of the group.
  
  
  
  Products offered
  
  The products offered by the p&GS section can be divided into two groups namely schemes offered only to employer employee groups and schemes offered to all
  groups.
  
  
  A.Scheme offered only to employer employee groups:
  
  Schemes offered to employer-employee groups are mostly rooted through the concept of employers’ responsibility for welfare of its employees. Some of these liabilities are statutory like Gratuity and some are voluntarily taken up liabilities like superannuation, leave encashment benefit to the employees.
  
  For all these benefits, whether statutory or voluntary, The employee has only two options-
  
  1. Pay the liability as and when it arises and claim this payment as deductible
  expenses under P&L A/C of that year or
  
  2. To provide for these liabilities on accrual basis by creating a trust and then
  paying the amounts every year to these trust which is advisable as sound
  financial management and mandatory as per Accounting Standard 15(AS 15).
  The trust set up has to privately managed all the tasks related to investment of
  fund, acturial valuation of the liability, making payments as and when they
  become due. etc.
  
  The following 3 Group Schemes of LIC are designed to suit need of the employee to relieve the task of management of trust fund and at the same time, to get the advantages of better returns on Investments in view of higher amount of fund available in matter of investments etc.
  
  I-Group Gratuity Cash Accumulation scheme (GGCA)
  
  Employer’s statutory liability- is to pay 15 days salary (15/26 of a month’s wages) for every completed years service to each of his employees on their exit, for any reason after 5 years of continues service, subject to maximum limit of 3.5 lacs under the payment of gratuity act 1972. The employer can account for this liability by taking LIC’s group Gratuity scheme. The employer will make contributions to LIC’s Scheme as prescribed by LIC every year through trustees and the job of investment is taken over by the corporation free of charge and in addition, interest is paid by the Corporation on the accumulated funds. All claims pertaining to gratuity are thereafter paid from the fund managed by the corporation.
  
  A unique feature of our schemes is to provide, in the event of pre-mature unfortunate death, a sum equal to the gratuity payable in respect of the entire service (Actual and future). Future service gratuity i.e. life cover is restricted to limits depending on the group size.
  
  On opting for the GGCA Scheme, the company absolves itself of the responsibility of managing the fund, which has to be done as per stringent laws. It also gets a very attractive return. The last declared return being from 8.7% to 9.3% depending on the fund size.
  
  II- Group Superannuation Cash Accumulation (GSCA)
  
  One of the Voluntary benefits given up by most of the Employees to their employees are the pension benefit. The benefit may either be defined in advance as either a fixed amount or a percentage of the last salary drawn or as a percentage for every year of service put in by the employee (i.e. Defined Benefit of DB) or alternatively the amount of contribution be decided as % of basic salary, pertaining to the employees for the creation of a fund, which would be used to purchase of an annuity at the time of retirement (i.e. Defined contribution or DC) In both options, The company has to create a superannuation fund to honor the benefits to the fund, which can either be self maintained, in which case the investment pattern is highly regulated and subject to regulatory security, or it can be passed on to LIC, in which case the responsibility of investment as also adherence to regulatory provisions of investment becomes the responsibility of the corporation. The fund also earns very attractive returns. The last declared returns being from 8.7% to 9.3% depending on the fund size.
  
  An add- on life cover can also be opted for along with the scheme so as to provide death risk cover while in service, provided the minimum membership under the scheme is 10. The cover is generally equal to two months salary for every year of service remaining for an individual.
  
  A company having both GGCA as well as GGCA can avail the benefit of clubbing both the funds to avail higher returns from the slab wise returns declared.
  
  III- group leave Encashment Scheme
  
  Many employers are providing Lease Encashment benefit in addition to other retirement benefits to their employees which are a lump of sum amount payable to the employees or their dependants on retirement, death, disablement, voluntary retirement etc.
  
  As per the amended section 209(3) of the company’s Act 1956 and accounting Standard (AS-15) dated January, 1995, the employees have to account for the liability in respect of leave encashment facility, if any, available to the emplyees and to provide for the same in their Annual Accounts. It is therefore, necessary for the companies to ascertain liability in respect of leave Encashment facilities, if any, available to the employees and provide for the same in the books of accounts every year. It helps the employees in ascertaining the true cost of their products and services.
  
  Group leave encashment Schemes(GLES) of LIC helps the employees in funding of their leave encashment liability. LIC quotes the funding requirements after acturial valuation of leave encashment liability based on the employees’ data and rules for leave encashment submitted by employer. The company can then contribute the amount as per the advice of LIC. 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 created to the running account at the end of the financial year.
  
  A uniform cover subject to minimum of Rs. 5000/- and maximum of Rs 100,000/- per employee or graded cover upto Rs 300000/- will be provided under one Year renewable group term Assurance plan of LIC. A small term insurance premium will be charged in addition to contribution for funding.
  
  In addition to above 3 schemes which are related to retirement benefits of employees, two more schemes which are designed for only employer-employee group are as follows-
  
  IV-Group Insurance in Lieu of EDLI.
  
  Employee’s Deposit Linked Insurance Scheme, 1976- All employer to whom the Employers Provident Fund and Miscellaneous Provision Act, 1952 applies, have a Statutory liability to subscribe to above Scheme, to provide for the future benefit of Life insurance to all their employees. This schemes provides for (as amended with effect from 24th june 2000), the insurance cover equal to the average balance to the credit of the deceased employee in the provident fund during the last 12 months, provided that where such balance exceeds Rs 35000, insurance cover would be equal to Rs 35000 subject to a maximum of Rs 60000 For this benefit the contribution @0.50 of each employees’ salary is payable by the Employer to the provident Fund Authorities.
  
  However, Under section Sec. 17(2A) of the act, the employer may be exempted from taking this scheme. If he/she has provided for better insurance benefits through alternative scheme. LIC’s Group Insurance Scheme in lieu of EDLI has been accepted as one such better Alternative.
  
  The advantage in the schemes are as follows:
  
  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. Each employees is covered for a sum assured ranging between 5000 to 200000 and above 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 upto Rs 2 lacs. The benefit derieved shall be at least Rs 2000 more than the cover he would get from the RPFC.
  4. Any member who is a member of the provident fund shall be covered under the scheme irrespective of age or health.
  
  V- Group Savings Linked Insurance
  
  LIC has come out with an attractive insurance scheme viz. Group Savings Linked insurance schemes at a very low cost. Central govt has a similar scheme with minor modifications. Semi-govt Organizations, Public sector Organizations and also Large private business houses and industrial enterprises have introduced this scheme, the salient features of which are as under.
  
  Objectives of the scheme
  
  a) Protection at low cost without individual evidence of health.
  b) Attractive returns on savings to meet post retirement needs
  c) Simple procedures for granting life cover to large groups under one umbrella
  
  
  This is a saving linked insurance scheme in which the savings to premium ratio is generally 2:1. The premium can be paid by employees or by both employer and employees. A portion of premium is utilized for term insurance cover and the balance is accumulated from year to year. The accumulation is returned with interest as retirement, death or exit from service. In case of death during service, amount of term insurance cover with accumulated amount is paid to the nominee. The premium can be claimed for income tax relief and benefits when paid will be treated as insurance proceed and therefore exempted from tax. The scheme can be launched if at least 75% of the staff members of the organization join the scheme as also all new recruits must necessarily join the scheme.
  
  The scheme has very attractive returns, which is currently 8%. The main benefit of the scheme is that it has an insurance cover so also a saving element which is paid back on the beneficiary’s retirement. The entry into the scheme depends on simple unsurability condition like not absent on health ground on entry date.
  
  VI- Gratuity Plus(G+)
  
  The latest plan to be launched under the P&GS fold is the Gratuity Plus. This is a unit linked Scheme. This scheme is the first unit linked Scheme. This Scheme is the first Unit linked Group Insurance Scheme. An employer funding for the Gratuity liability of his employees through LIC managed trust fund can opt to go in for this scheme in place of conventional GGCA, contributions received under the scheme will be allocated on the basis of Allocation Rate which constitutes Allocated fund. From the allocated fund, charges are deducted, and the balance is invested in one of the four funds as choosen by the policyholder. There are four types of funds which differ in risk profile. The Policyholder has the option to choose the type of fund where his funds are to be invested. The invested fund constitutes Unit fund and the various charges including the Allocation Charges constitute the Non-Unitised Fund.
  
  Life cover to all employees either equal to a certain number of months salary subject to minimum of one month’s salary OR future service gratuity, as opted by the Policyholder, will be given. One of the special features of the scheme is auto cover. If the contributions are not received on a policy anniversary, an Auto cover is provided to the moments from the policy anniversary for which the contributions have not been received from the policyholder. The premium for the auto cover after being calculated is realized from the fund by canceling units equivalent value.
  
  VII- Annuity
  
  Companies who are having self managed superannuation funds can purchase annuities (pension benefits) from the corporation. This is similar to the Jeevan Akshay scheme which is there in the individual side. However the annuity rates are different. The options for annuity that are available are;- a)annuity for life, b) 5,10,15,20 years annuity Certain and life thereafter, c) Joitn life Annuity d) Life Annuity with Return of capital. On the exit of the employee other than by death, Accrued Gratuity will be paid out of Unit fund by canceling the required number of units. On death of the employee, along with the Accrued Gratuity the Term Insurance cover will also be paid. The term Insurance cover will be paid out of Unit Fund by canceling the required number of units. On death of the employee, along with the Accrued Gratuity the Term Insurance cover will also be paid. The term Insurance cover will be paid out of Non-unit fund.
  
  The new asset Value (NAV) of each fund is computed daily. The NAV per unit is arrived at by dividing the next Assets under the fund by the number of units issued under the fund.
  
  The master Policy Holder has the option to switch from one fund to another at any time. One such switch every year is free. Subsequent switches in that policy year shall be subject to a switching charge of 0.1% of the fund switched over subject to a minimum of Rs 1000 and maximum of Rs 50000 per switch.
  
  The contributors allocated to purchase units are invested according to the investment pattern laid down for different types of funds. The policyholder has the option to choose any ONE of these funds.
  
  POST by Bijay Thapa. bijay-lifeinsurance.blogspot.com