This life Insurance policy is purchased by the employer on behalf of his employees. The basis of this arrangement is that the employer has an Insurable Interest in his employees. An employer spends a considerable amount of time and money to hire and retain an employee hence he wouldn’t like to lose trained personnel. This insurance policy acts as an encouragement or reward program for the employee to continue with his employer. This concept helps the employees to trust the employer in a better way leading to reduced attrition and employee satisfaction.
Who can buy an Employer- Employee Insurance?
Indian or NRI employees of any firm who have their registered office in India and who are on the pay roll, fit into the criteria of employer-employee insurance policy. The employee should be more than 18 and less than 60 to be eligible for the policy.
A sole proprietor or a corporate or any other legal firm with minimum 5 employees who are on the payroll can buy this policy. An employer can decide the quantum of insurance on the basis of CTC, qualification, experience and previous record of the employee.
Combined shareholding of the employee and his or his relatives such as spouse, children, in-laws, parents, siblings etc in the employer company should not exceed 51%. Even a loss making Company can take this Policy.
Types or Arrangement to purchase Employer- Employee Insurance
This policy can be purchased with either of the arrangements listed below:
Type A – Employer is the proposer and Employee is the Life assured.
The Employer pays the Premium in favour of the employee for a specific period of time as agreed before it is assigned to employee. Once assigned the employee has to pay the Premium until otherwise employer agrees to pay the same. The maturity amount and death claim shall be available to the employee/Nominee which is tax free, once the policy has been assigned to the employee by the employer.
Type B –Employee is the proposer and Life assured, here Employer has no control over the policy. No need of Assignment in this scenario.
Benefits of the policy to the employer:
This policy helps the employer to gain the loyalty of his employees.
It helps to minimize the employee attrition rate.
Helps the employer to enjoy tax rebates on the Premium paid under U/S 37(1) of IT Act.
Benefits of the policy to the employees:
The employee gets benefit of life cover without paying any Premium.
This provides security to the employees against difficult circumstances like illness, accident/disablement, and premature death.
In the event of an unfortunate death of the employee, his family receives the Sum assured as claim.
The employee gets the benefits which are tax-free.
Premium paid by the employer are eligible for tax deduction under sed 37(1) of IT Act. Sec 80 C benefit is not available for the employee when the Premiums are paid by employer.
The sum total of the Premiums paid by the employer before Assignment is treated as perquisite as per sec 17(2) (V) of the IT Act and will be added to the taxable income of the employee in that financial year. The Premiums paid by the employer after Assignment is treated as perquisite in that financial year and will be taxed. Employee can claim under sec 80© even if the Premiums are paid by the employer.