A PROJECT REPORT ON

GROUP INSURANCE – A CASE STUDY

SUBMITTED BY
NAIR SHARI SIVAN
THIRD YEAR (BANKING & INSURANCE) (SEMESTER – VI)
2010 – 2011

MODEL COLLEGE
DOMBIVLI

UNIVERSITY OF MUMBAI
MARCH 2011

1
 A PROJECT REPORT ON
GROUP INSURANCE – A CASE STUDY

SUBMITTED TO

THE UNIVERSITY OF MUMBAI

IN PARTIAL FULFILLMENT
FOR THE AWARD OF THE DEGREE
OF BACHELOR OF COMMERCE (BANKING & INSURANCE)
VI SEMESTER

BY
NAIR SHARI SIVAN
MODEL COLLEGE
DOMBIVLI

MARCH 2011

2
 DECLARATION

I, NAIR SHARI SIVAN, student of Bachelor Of Commerce

(Banking & Insurance) VI Semester of Model College Dombivli (E),
hereby declare that, I have completed this project on “GROUP
INSURANCE – A CASE STUDY” for the academic year 2010 –
2011.

The information submitted is true and original to the best of my

knowledge.

NAIR SHARI SIVAN

THIRD YEAR (BANKING & INSURANCE)

3
 ACKNOWLEDGEMENT

I would like to extend my sincere gratitude to all those people who

have helped me in the successful completion of my project entitled
“GROUP INSURANCE – A CASE STUDY”

First and foremost I would like to thank my project guide MRS.

GEETHA NAIR for being kind enough in sparing her time and
energy from her busy schedule and helping me in collecting the
necessary data.

Also I owe my sincere gratitude to LIFE INSURANCE

CORPORATION OF INDIA, whose dynamism and positive
approach gave an effective momentum to my project.

I would also like to express my sincere thanks to our Principal, Dr.

M. R. Nair for his constant moral support and vision.

This project could not have been possible without the help of entire
library department of our college. They made as much data,
books, magazines etc. available as they can to facilitate the easy
collection of information.

NAIR SHARI SIVAN

4
 TABLE OF CONTENTS

SR.NO DESCRIPTION PAGE

NO
1 CERTIFICATES I
2 DECLARATION II
3 ACKNOWLEDGEMENT III
4 TABLE OF CONTENTS IV
5 LIST OF ABBREVIATIONS V
6 LIST OF DIAGRAMS VI
7 CHAPTER I 1-4
8 CHAPTER II 5-8
9 CHAPTER III 9 - 23
10 CHAPTER IV 24 - 47
11 CHAPTER V 48 -49
12 BIBLIOGRAPHY 50

LIST OF ABBREVIATIONS

 LIC : Life Insurance Corporation of India

 JBY : Janasree Bima Yojana

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 OYRGTA : One Year Renewable Group Term Assurance
Plan
 GLES : Group Leave Encashment Scheme
 EPS : Employees Pension Scheme
 EPF : Employees Provident Fund
 GPF : General Provident Fund
 CPF : Contributory Provident Fund
 PPF : Public Provident Fund
 EDLIS : Employees Deposit Linked Insurance
Scheme
 EPFO : Employees Provident Fund Organisation
 FPS : Family Pension Scheme
 PF : Pension Fund
 EMI : Equated Monthly Installments
 HIV : Human Immunodeficiency Virus
 NGO : Non- Governmental Organisation

LIST OF DIAGRAMS

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DIAGRAM TOPICS PAGE NO
NO
4.1 GROUP SCHEMES 24

4.2 SOCIAL SECURITY SCHEMES 25

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8
CHA
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10
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 CHAPTER 1
AN INTRODUCTION

Insurance can be defined as the process of reimbursing or

protecting a person from contingent risk of losses through financial
means, in return for relatively small, regular payments to the
insuring body or insurance company.

Insurance involves pooling funds from many insured entities

(known as exposures) to pay for the losses that some may incur.
The insured entities are therefore protected from risk for a fee, with
the fee being dependent upon the frequency and severity of the
event occurring. In order to be insurable, the risk insured against
must meet certain characteristics in order to be an insurable risk.
Insurance is a commercial enterprise and a major part of the
financial services industry, but individual entities can also self-
insure through saving money for possible future losses.

In the good olden days, the farming community used to live almost
self sufficiently. In the hours of crisis the members helped each
other. When the family head temporarily stayed back from farming
operations owing to sickness, the other members of the family
automatically took care of him. Industrialization has dramatically
changed the way of life around the world. There was rapid growth
growth in new industries and the existing industries looked to
expand domestically and internationally. Industrial revolution
brought opportunities as well as threats. The immediate
advantages were development of new tools and technological

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advancements, innovations in production methods, mechanization
of activities, large scale operations, cost reductions, cost
efficiency, creation of colossal employment opportunities, evolution
of new knowledge and emergence of new professions. On the
other hand, the concept of social security in the form of joint family
system was slowly getting eroded. Self – dependence and self –
sufficiency were lost when people started migrating from farms to
factories. The concept of nuclear family took birth and people
started feeling socially and economically insecure. In the process
every member of the society was compelled to work to gain
economic independence.

Though, life insurance offers protection to the family in the event of

the unfortunate death of the life assured, it is also true that majority
of the population cannot afford to buy sufficient insurance cover.
That’s where, group insurance steps in. Collection of people as a
group, union, corporation or trade association brings out the
“power of members” to bargain for a good price. Hence, group
insurance extends insurance coverage at an affordable price to
many. Even employers get encouraged to provide a welfare
package through group insurance schemes to their employees.

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 ABOUT THE REPORT:

1) TITLE OF THE STUDY:

The present study is titled as – “A PROJECT REPORT ON

GROUP INSURANCE – A CASE STUDY”. The study is made with
special reference to “LIFE INSURANCE CORPORATION OF
INDIA”.

2) OBJECTIVES OF THE STUDY:

i. To study the benefits of group insurance to customer.

ii. To study different schemes under group insurance.
iii. To know the group insurance schemes provided by Life
Insurance Corporation of India.
iv. To study the eligible groups for group insurance coverage.

3) LIMITATION OF THE STUDY:

The present study suffers from all limitations of case study method.

4) DATA & METHODOLOGY :

15
For the purpose of the present study, both primary and secondary
data were used. Primary data collected from insurance company
visit, interviewing staff etc. Secondary data collected for books,
internets, etc.

5) CHAPTER LAYOUT :

The present study is arranged as follows:

a) Chapter 1: “AN INTRODUCTION” gives an introduction of title

and the report.

b) Chapter 2: Gives profile of Life Insurance Corporation of

India.

c) Chapter 3: Deals with Group Insurance – A Theoretical view.

d) Chapter 4: Group Insurance – A Case Study.

e) Chapter 5: Summarizes the result of the study.

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 CHAPTER – 2

LIFE INSURANCE CORPORATION OF INDIA

– A PROFILE

The Life Insurance Corporation of India (LIC) is the largest state-

owned life insurance company in India, and also the country's
largest investor. It is fully owned by the Government of India. It
also funds close to 24.6% of the Indian Government's expenses. It
has assets estimated of 9.31 trillion (US$202.03 billion). It was
founded in 1956 with the merger of more than 200 insurance
companies and provident societies.

Headquartered in Mumbai, financial and commercial capital of

India, the Life Insurance Corporation of India currently has 8 zonal
Offices and 101 divisional offices located in different parts of India,
at least 2048 branches located in different cities and towns of India
along with satellite Offices attached to about some 50 Branches,
and has a network of around 1.2 million agents for soliciting life
insurance business from the public.

History:

The Oriental Life Insurance Company, the first corporate entity in

India offering life insurance coverage, was established in Calcutta
in 1818 by Bipin Behari Dasgupta and others. Europeans in India
were its primary target market, and it charged Indians heftier

17
premiums. The Bombay Mutual Life Assurance Society, formed in
1870, was the first native insurance provider.

The first 150 years were marked mostly by turbulent economic

conditions. It witnessed, India's First War of Independence,
adverse effects of the World War I and World War II on the
economy of India, and in between them the period of world wide
economic crises triggered by the Great depression. The first half of
the 20th century also saw a heightened struggle for India's
independence. The aggregate effect of these events led to a high
rate of bankruptcies and liquidation of life insurance companies in
India. This had adversely affected the faith of the general public in
the utility of obtaining life cover.

The Life Insurance Act and the Provident Fund Act were passed in
1912, providing the first regulatory mechanisms in the Life
Insurance industry. The Indian Insurance Companies Act of 1928
authorized the government to obtain statistical information from
companies operating in both life and non-life insurance areas. The
subsequent Insurance Act of 1938 brought stricter state control
over an industry that had seen several financially unsound
ventures fail. A bill was also introduced in the Legislative Assembly
in 1944 to nationalize the insurance industry.

Nationalization:

In 1955, parliamentarian Amol Barate raised the matter of

insurance fraud by owners of private insurance companies. In the
ensuing investigations, one of India's wealthiest businessmen,

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Ram Kishan Dalmia, owner of the Times of India newspaper, was
sent to prison for two years. Eventually, the Parliament of India
passed the Life Insurance of India Act on 1956-06-19, and the Life
Insurance Corporation of India was created on 1956-09-01, by
consolidating the life insurance business of 245 private life insurers
and other entities offering life insurance services. Nationalization of
the life insurance business in India was a result of the Industrial
Policy Resolution of 1956, which had created a policy framework
for extending state control over at least seventeen sectors of the
economy, including the life insurance.

Current status:

Over its existence of around 50 years, Life Insurance Corporation

of India, which commanded a monopoly of soliciting and selling life
insurance in India, created huge surpluses, and contributed around
7 % of India's GDP in 2006.

The Corporation, which started its business with around 300

offices, 5.6 million policies and a corpus of INR 459 million (US$
92 million as per the 1959 exchange rate of roughly Rs. 5 for a US
$, has grown to 25000 servicing around 180 million policies and a
corpus of over 8 trillion (US$173.6 billion).

The recent Economic Times Brand Equity Survey rated LIC as the
No. 1 Service Brand of the Country. The slogan of LIC is "Zindagi
ke saath bhi, Zindagi ke baad bhi" in hindi. In english it means
"with life also, after life also.”

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Mission:
"Explore and enhance the quality of life of people through financial
security by providing products and services of aspired attributes
with competitive returns, and by rendering resources for economic
development."

Vision:
"A trans-nationally competitive financial conglomerate of
significance to societies and Pride of India."

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 CHAPTER 3
THEORETICAL VIEW

Industrial Revolution became major source for spreading earlier

the concept of group insurance. Majority of the factories employed
huge machineries, and working with them more often led to
accidents resulting in injuries, disablements, and deaths. Hence, a
need for social protection was felt by individuals who suffered from
the occupational hazards and accidents. This need for providing
variety of benefits on a cost effective scale gave a boost to group
insurance. Low cost and liberal underwriting norms unlike those
followed in the individual insurance led to phenomenal growth of
the group insurance. Hence, those individuals who where denied
individual insurance could get insurance protection on group basis.

With the passage of time, different types of group insurance

policies based on combination of benefits decided for employee by
the employer and state emerged. Some of the benefits were
payable on untimely death, while some benefits were payable on
survival. Similar to the two basic plans in the Life Insurance i.e.,
term assurance and pure endowment, the Group Life Insurance
and Group Superannuation Schemes can be combined in a
multiple number of ways to form new schemes in order to meet
growing demands.The concept of group insurance emerged and
flourished in the western and developed countries, while it took a
late start in India. Major developments were observed only after

21
independence, though in the initial years, the group insurance
market was not amenable to this kind of benefit to employees.
However, with gradual realization of importance of group
insurance, and demands by trade unions, a sudden rise in
business was noticed. Group insurance has almost become an
indispensable part of the employee benefit package. Group
insurance has indeed made great contribution to the society as
could be seen from the following:

• Providing insurance facilitates to the small

enterprises, where the employees are not able to purchase
the individual insurance policy.

• In the world of increasing cost of living,

group insurance is helping organizations by providing
insurance facilities at lower cost.

• Group insurance offers insurance

coverage to unlimited number of employees under the same
contract; this makes it accessible to all types of organizations.

• Employers are nowadays more concerned

with high productivity and morale of the employees. Thus,
group insurance has become quite handy to the employers in
offering healthcare coverage as employee benefits at a lower
cost.

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 • Group insurance under the same umbrella
provides various products of life, accident and health
insurance, which would ultimately help employers, retain
employees and their high productivity.

IMPORTANCE OF GROUP INSURANCE:

Group insurance has changed the picture of the whole insurance
industry. Because of different insurance products, it has been a
blessing for both the employers and the employees. It offers an
element of certainty to employees by comforting the people
affecting by ill health, disability, unemployment and even
premature death, etc., at an affordable price.

Benefits to the Employees:

Employees have been the major gainers of group insurance, which
has increased the scope of employee benefits manifold.

 Low Cost:
The major benefit derived by the employee under group
insurance is the low cost of policy as compared to the
individual insurance policy. This is feasible due to large
number of employees under the same insurance policy that
ultimately reduced the administrative costs.

 Employee Benefit Plan:

Group insurance is the most popular employee benefit plan
in the foreign countries. A large section of the working class
is found to be unable to obtain an individual insurance policy
for oneself/one’s spouse/family because of its high cost.

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 Thus, it depends solely on the employer to fund its insurance
policy.

 Flexibility:
The concept of group insurance is applicable to all the
sections of society and industry. This aspect of group
insurance has made it popular among different groups like
trade associations, etc.

 Tax Deductions:
The employee under the group can avail the benefits of tax
deductions by contributing to the group insurance policy.

Benefits to the Employers:

Group insurance has become an essential employee benefit, and
has helped employers in not only improving the productivity of the
employees but also employee morale in the organization.

 Retention:
Many organizations provide group insurance to their
employees in the form of an additional benefit to retain them
for a longer period. Group insurance benefit not only
increases the retention ratio among the employees, but also
their productivity and morale.

 Public Image:

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 An organization can always promote its public image through
group insurance schemes and thus, attract the major
productive cream of the market.

 Tax Benefits:
By providing the group insurance benefit plan, whether
contributory or non-contributory, to the employees, the
employer can avail tax deductions under the taxation rules.

 Size of Organization:
Group insurance is beneficial to all types of organizations,
irrespective of size and number of employees.

FEATURES OF GROUP INSURANCE:

 Master Contract:
In group insurance, large number of employees, belonging to
a homogeneous unit are insured collectively, under a “master
policy or a contract” for the whole group. The master contract
is issued to the employer, while the employees receive
“certificate of insurance”.

 Premium Payment:
On the basis of premium payment, group insurance is
divided into two categories, contributory and non-
contributory. To obtain the benefits of high productivity,
organizations prefer to take the non-contributory policy by
paying fully by themselves or both the employer and the

25
 employee sharing the cost as in the case of a contributory
policy. In both the cases the employer gets the benefits of
tax deduction to the extent of his contribution towards the
premium.

 Determination of benefits:
The insurance company has to decide the method of
determining the benefits in a way that individual selection
both by the employer and the employee does not generate
conflicts. Thus, the employer needs to determine a formula
or a specific level of salary or position that forms the basis for
determination of benefits.

TYPES OF GROUP INSURANCE PLANS:

Several kinds of group plans are being offered by the insurance
companies but the following are the more common kind of plans
available in India and abroad:

 Group Term Life Insurance:

Group life insurance schemes aims at providing insurance
coverage to employees. These plans are usually renewable
annually. The scheme may be contributory or non-
contributory depending on the employment conditions. In
case of contributory scheme, the proportion of premium
shared by employee is deducted from the salary of
concerned and together with contribution of employer is paid
to the insurance company.

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 Group Supplemental Life Plans:
The Supplemental Life Plans or optional life plans offer
additional insurance benefits beyond the basic benefits
provided under the group term life plans. The premiums are
usually shared by employer and employee. The premiums
under these plans are usually dependent on age of the
employee with brackets of five years. Medical coverage is
also provided though members need not undergo a medical
check-up, and a declaration of good health from the
members is considered sufficient.

 Group Accident Insurance:

The Group Accident Insurance plan is a modified
version of the basic term assurance plan, which provides
coverage against accident risk to the member. Here, the
insurance amount is paid on total and permanent disability or
death of the member caused purely due to accident. On
temporary disability, regular income for the period of
unemployment is provided. The coverage is usually
extended full time i.e., non-occupational and twenty four hour
basis. In most cases the premium is fully borne by the
employer.

 Group Credit Life Insurance:

The Group Credit Life Insurance plan is a modified version of
the Group Term Life Insurance plan, which offers death
benefit that is equal to the outstanding debt amount of the
member. These plans are most popular in the banks, which
lend huge money and the credit risk assumed by them. The

27
 member under the policy is usually the creditor who takes
loans from the lender. The lender can take a group credit life
insurance plan on the lives of his debtors, and the premium
is borne by lender on non-sharing basis.

 Group Disability Income Insurance:

Group Disability Income plans intend to provide periodical
income during the loss of income caused due to disability
like, accident or sickness. These plans help a member to
meet his/her basic financial needs caused due to unfortunate
event. Determining the amount of disability stands as a
challenge for the insurance company. The group disability
plans are issued on short-term and long-term basis.

 Group Gratuity Scheme:

According to the provisions of the Act, every employer needs
to pay gratuity on retirement or death of an employee at a
rate of 15 day’s salary for every completed year of service
rendered. An employer has got option on the creation of a
trust, to either manage it privately or enter into an agreement
with an insurance company for its management. Here, an
employer creates a trust, and the trustees enter into a group
gratuity scheme with a life insurance company. The trustees
delegate the management of the trust, the life insurance
company, and on such delegation, insurance company takes
care of the administration, investment and periodical
valuations of the fund.

 Group Superannuation Scheme:

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 The superannuation schemes were developed with an
intention to provide post-retirement income to the
employees. In India, these schemes were introduced much
later, while in western countries they where available from
the beginning of this century. A well designed and managed
group superannuation plan can provide a considerable
amount to an employee, without the employer prone to much
complications and hardships.

 Group Leave Encashment Scheme:

A Group Leave Encashment Scheme provides employers a
method to fund the leave encashment liability of their
employees. An advantage of the scheme is that
employer/trustees need not bother about investment of funds
and actuarial valuation. Insurance companies also offer
death benefit under the schemes. Employers need to pay the
contributions in the form of premiums to the insurance
company. This is mainly non-contributory scheme. The
insurance company pays the leave encashment amounts as
and when an employee retires.

 Group Disability Scheme:

Disability is defined as the inability of the insured employee
to perform the duties of his job, owing to any occupational or
non-occupational injury, accident or sickness. Disability
insurance provides security in the form of stated amount of
periodic income against loss of income owing to an insured’s
inability to work due to a disability, illness or accident. Such

29
 coverage could be had either for disabilities due to accidents
alone or accidents and illness.

 Group Health Insurance:

A couple of health insurance schemes are available in India,
which are offered by public and private insurance
companies.

 Group Mediclaim Scheme:

The group mediclaim scheme is available to any
group/association/institution/corporate body of more than 50
persons, provided it has a central administration point. Only
one policy is issued for the entire group. It is not permissible
to issue any unmanned group policy.

SOCIAL SECURITY:
Social security has emerged as a sequel to the society from
agricultural to industrial that changed the very social fabric as the
people who migrated to the big cities found themselves to be
financially insecure as they could find very few people around to
share their uncertainties/emotional needs with. This change
occurred first in Europe during the 19th century. Although industrial
revolution brought with it increased material benefits, it also led to
unsuitable living conditions, increased working hours and
disparities in wealth between the upper and the lower class of
people in the society. To arrest the ill effects of such disparities,
many governments came up with the concept of “Social Security”.

30
In the Indian scenario, the government is the major player in the
field of social security measures. Social security is mainly in the
form of government initiated employer benefits, rural insurance
and benefits for the social sector. Apart from the government, the
private employers and insurance companies are forging ahead in
the field of social security or social insurance in the form of various
employee benefit packages.

EMPLOYEE BENEFIT SCHEMES:

Over a period of time, employers too have realized that it is their
interest to protect and provide different kinds of benefits besides
wages to their employees. Thus, the term “employee benefits”
came into existence. In a broad sense, it includes everything that
an employer made available/provided to the employees, other than
direct wages and cash bonuses, including government-mandated
benefits and perks, etc., provided to managers / executives etc. To
start with, the “employee benefits” were mostly confined to all that
an employee would be requiring in situations like death, accident,
sickness, retirement and unemployment. However, as time
advanced the term “employee benefits” expanded its coverage.

The prominent form of employee retirement benefits such as:

 Provident Fund
 Employees Deposit-Linked Insurance Scheme
 Gratuity
 Employees Pension Scheme

 PROVIDENT FUND

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Provident fund is a lump sum amount accumulated over a
period of service of employee, and is paid on
retirement/death/resignation of the employee. Both employer
and employee contribute towards provident fund account of
employee. It is a defined contribution scheme, with the
minimum amount of contribution fixed by the government. An
employee can be part of one of the following schemes:

• Employees provident fund scheme.

• Recognized provident fund.
• Provident fund schemes of government employees.
• Public provident fund.

Employees Provident Fund Scheme

The Employees Provident Fund Act was passed with
the objective of providing adequate financial support to
the employees on their retirement. This act was amended
by introducing benefits for the dependants of the
employee, on his/her unfortunate death while in service.
This Act was later renamed as Miscellaneous Provision
Act. This Act included the Employees Family Pension
Scheme of the year 1971 and later on the Employees
Deposit Linked Insurance Scheme in the year 1976. For
those not covered by the EPF Act, the contributions to the
provident fund and other retirement benefits were
voluntary.

BENEFITS:

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• On retirement from service after reaching 55 years of
age.
• Retirement due to permanent and total incapacity for
work on account of physical or mental disability.
• Migration from India with the intention of permanent
settlement abroad.
• Termination of services.

Recognized Provident Fund:

Every employer who employs more than twenty people
statutorily obliged to set-up a provident fund. A provident
fund is in the nature of a savings plan in which the
employers and the employees contribute a fixed sum as a
percentage of their monthly earnings. The savings are,
thus, allowed to accumulate with interest so that a lump
sum is available to the employee at the time of retirement.

Provident Fund Schemes of Government Employees:

The employees of the central government undertakings
who are entitled to pension as per service conditions,
usually receive monetary benefits, from the General
Provident Fund(GPF), while those who are not eligible for
pension as per service conditions, receive benefits from
the Contributory Provident Fund (CPF). The minimum rate
of contribution in the GPF account is 6% while they can
contribute an amount higher of this if desired. Apart from
employee’s contribution in case of CPF, employers also
contribute at a rate of 10% of salary of employees. Early

33
 withdrawals and advance against available balance,
subject to certain limits is allowed.

Public Provident Fund:

The Public Provident Fund was instituted under the Public
Provident Fund Act, 1968. The PPF scheme is a financial
instrument for workers in the unorganized sector to
ensure old age income security through adequate
accumulated savings. It is a defined contributory scheme
with individual accounting system. A PPF Account can be
opened by an individual on his own name. He can also
open an additional account on behalf of a minor of whom
he is the guardian. A PPF account can be opened at any
Nationalized Bank or Post Office.

 EMPLOYEES DEPOSIT LINKED INSURANCE

SCHEME:
Though in the Employees Provident Fund Scheme monthly
contributions of the employees and employer to accumulate
with interest, these accumulations take time to become
sizeable amounts. Meantime, if the employee dies while in
service, the payment of contribution will cease and only
accumulated balance standing to his credit at that point of
time will become payable to his family. If this happens in the
early part of his employment, the amount outstanding in the
account will be meager to fulfill needs of family of deceased.
A need was felt to provide financial help to the members of
the family on the unfortunate death of the employee. Hence,
the Employees Deposit Linked Insurance Scheme was

34
introduced in the year 1976. Among all the schemes of
EPFO, the EDLIS is believed to be the most well performing
scheme.

 GRATUITY BENEFIT:
The Payment of Gratuity Act is one of the legislations passed
by the Indian government for providing old age income
security for both organized and unorganized sector working
population. The foremost purpose of the Act is to provide a
minimum amount to the workers depending on the number of
years of service rendered by them to their employer. Gratuity
i.e., a lump sum is paid to the employees/workers on their
leaving the services due to retirement, resignation, disability
or death.

 EMPLOYEES PENSION SCHEME:

The Employees Pension Scheme was introduced in 1995 as
an important constituent for old age income benefit of
employees, under the Employees Provident Fund and
Miscellaneous Provisions Act. The earlier Family Pension
Scheme was substituted by the Employees Pension Scheme
in 1995. FPS was mandatory for all employees who joined
service on or after 1st march, 1971, and for employees who
joined prior to 1st march 1971; it was optional to join the
scheme. Neither employer not the employees needed to
make separate contributions towards the scheme, instead
from the existing contribution an amount equal to 2.33% of
the wages were made to the scheme. Neither employer not
the employees needed to make to the scheme. Government

35
 also contributed an amount of 1.16% of the wages towards
the scheme. EPS is essentially a defined benefit scheme.
Being a defined benefit scheme the pension payable is
dependent on the final salary of the member and the number
of years of service rendered.

CHAPTER 4
GROUP INSURANCE
- A CASE STUDY

Group Insurance Scheme is life insurance protection to groups of

people. This scheme is ideal for employers, associations, societies
etc. and allows you to enjoy group benefits at really low costs.
Following are the different types of group schemes:-

36
 Group Term
Insurance Sche
mes

Group Insurance
Group Critical Illness Rider Scheme in Lieu
of EDLI

Group
Mortgage
Group Gratuity
Redemption Group
Scheme
Assurance Schemes
Scheme

Group Super
Group Leave Encashment Scheme Annuation
Group Savings Scheme
Linked
Insurance
Scheme

DIAGRAM NO: 4.1

Different types of Social Security Scheme are as follows:-

37
 Social Security
Schemes

JanaShree Bima Shiksha Sahayog Aam Admi Bima

Yojana Yojana Yojana

DIAGRAM NO: 4.2

1) Group Term Insurance Schemes:

 Nature of the Scheme:
Group Insurance Scheme is meant to provide life insurance
protection to groups of people. Administration of the
scheme is on group basis and cost is low. Under Group
(Term) Insurance Scheme, life insurance cover is allowed
to all the members of a group subject to some simple
insurability conditions without insisting upon any medical
evidence. Scheme offers covers only on death and there is
no maturity value at the end of the term.

 Premium Chargeable:
Group (Term) Insurance Scheme is at present offered
under One Year Renewable Group term assurance plan
(OYRGTA). Every year on Annual Renewal date LIC

38
charges the premium depending upon the changes in size
and age distribution of the age group.

 Different Schemes:
Group (term) Insurance Scheme has a number of varieties.
The Scheme may provide for a uniform cover to all
members of the group or graded covers for different
categories of members, cover for all amounts of
outstanding housing loans or vehicle advances, or some
other benefits (e.g., life cover to supplement pension or PF
benefits in case of death). The schemes may have add-ons
like Double Accident Benefit, Critical Illness Benefit,
Disability benefit etc.

 General Features of various Group Insurance

Schemes:

1. PREMIUM:
The premium under such scheme may be wholly paid by
the employer or the Nodal Agency. However, the
scheme may be contributory i.e. the members may also
contribute.

2. DOUBLE ACCIDENT BENEFIT:

Double Accident Benefit, i.e. payment of double the sum
assured on death due to accident (without permanent
disability benefit), may be allowed under Group
Insurance Schemes for an extra premium.

39
 3. ELIGIBILITY:
For Group Insurance Scheme in lieu of EDLIS the
insurability condition is that should be a member of the
Provident Fund Scheme of the employer. For other GI
Schemes of employer-employee groups the insurability
condition is that the member should not be absent on
ground of sickness on the entry date. For all non-
employer-employee Group Schemes the basic
insurability condition is that the member should be in
good health on the date of entry.

4. ADMINISTRATION OF THE SCHEME:

At the commencement and thereafter on each Annual
Renewal Date, the Group Policyholder will have to send
all the member's data (and particulars of the new
entrants from time to time) to the P & GS unit of LIC.
Detailed OYRGTA premium calculation will be made on
each Annual Renewal Date.

2) Group Insurance Scheme in Lieu Of EDLI :

 ADVANTAGES TO THE EMPLOYER :

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.

40
 2. Settlement of claim is quicker; LIC requires only the
death certificate and the Claim Form from the employer.

3. Premium paid by the employer is treated as normal

business expenses for Income-Tax purpose.

 ADVANTAGES TO THE EMPLOYEE:

Each employee is covered for a sum assured ranging
between 5,000 to 2,00,000 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 which will be decided depending upon the group
size.

 ACCIDENT BENEFIT:
Double accident benefit can be allowed to the extent of the
Sum Assured for an extra Premium.

3) Group gratuity scheme:

Life Insurance Corporation of India offers its Group Gratuity

Cash Accumulation scheme to enable employers to meet their
gratuity liability in a very simple and efficient manner. The
scheme is formulated in compliance with Part C of the IV
schedule of Income Tax Act and tax benefits are available as
provided in Income Tax rules.

41
 The gratuity arrangement with LIC provides the following
services to the company:

• Fund management under interest accumulation system

• Claim settlement on exit as per company rules/gratuity act

Built in Insurance arrangement for the employees for future
service

• MIS related to Income Tax and trusts accounts and Actuarial

valuation

 Fund management:
Critical issues

 Safety:
Liability on account of gratuity experiences sharp increase
every year due to its nature of its computation. Apart from
increase in service, increase in salary also contributes to
increase in liability substantially as the benefits are payable on
last drawn salary. Hence funds have to be invested in a
conservative way with a consistent growth and insulated from
market risks. The unique advantage with LIC is the
contributions made by the company and interests credited by
LIC are irreversible. This ensures highest level of safety for the
total corpus and consistency in future contributions. As the
gratuity payments are statutory and LIC gratuity scheme being
the only investment tool which enjoys sovereign guarantee,
gives a greater comfort to employer.

42
 Liquidity:
A fund available with LIC is a single account for investment and
claim settlement. Hence 100% liquidity is ensured for the
purpose of claim settlement.

 Yield:
LIC has been offering very competitive and consistent interest
rates over the years. For the year 2009-10, LIC has offered
9.00% - 9.65% depending on fund size. The interest declared is
net of administrative expenses incurred, hence no separate
charges are charged after crediting the interest. Interest rate
offered by LIC is on daily balancing method. Hence, there is no
idle time for earning interest, hence effective rate of interest is
much higher. Another significant aspect is interest gets
compounded annually, hence no reinvestment issues and no
time lags.

 No responsibility on trustees on Investment decisions:

Trustees are free from all investment risks and hassles in cash
accumulation system. Advantage of ‘real outsourcing’ can be
derived by associating with LIC.

 No hidden charges:
The scheme is focused on a long term association in
compliance with investment regulations and statutory payment
obligations and no charges are levied on the transactions for
which the fund is meant for.

43
 Funding can also be in a staggered pattern during the year, but
no charges at entry level for any number of payments. No
charges on withdrawals for resignation or retirement or death.
Total corpus comprising of money contributed by the company
and interest credited by LIC is available for claim settlement up
to 100% subject to availability of funds.

 Actuarial recommendations:
On annual basis, LIC provides this information to the trustees
and recommends the level of contributions.

 Claim settlement:
On the exit of an employee due to retirement / death/
resignation, trust may prefer a claim from LIC by sending a
claim form. Claim amount will be made available to trustees.

Trustees can have the following options :

• Preferring a claim from LIC and paying to
employee
• Paying the money to employees and seek
reimbursement
• Paying claims to employees at their end
and seeking annual reimbursement

 MIS:
LIC provides statement of receipts and payments and actuarial
valuation certificate and certificate of balance for the trust
account.

44
Besides the above said advantages, the scheme also provides
for employee welfare measures with built in insurance cover.

 Insurance cover for future service gratuity:

Another salient feature of the Gratuity Scheme with LIC is that it
provides for insurance coverage to the employees to the tune of
future service gratuity subject to certain limits.The insurance
cover can be flexible depending on the requirements of the
Trust. The Group Insurance premium will be commensurate to
the cover provided.

 Income Tax Benefit on Insurance Premium:

The insurance premium paid towards the above said benefits is
treated as deductible business expenses to the company.
The premium is not treated as perks in the hands of the
employees

4) Group Super Annuation Scheme:

 Advantages of LIC managed Mutual Funds:

The LIC managed Pension fund has the following added and
distinct advantages:-

1. An attractive and competitive yield on the fund will be

credited to Fund A/c.
2. The problem of liquidity gets automatically eliminated as
soon as the fund is managed by LIC.

45
3. We conduct free actuarial valuations of the funds
administered by us from time to time.

4. The Administration of the fund is carried out by us in a

scientific manner and claims are promptly settled.

5. Group Insurance in conjunction with the Group

Superannuation Scheme can be taken by an Organization to
provide for an attractive lump sum payment on the
unfortunate death of a member while in service, at very
nominal cost.

 Superannuation Scheme Provided by LIC:

The employer contributes a certain fixed percentage of salary of

each member. Such Contributions are accumulated by LIC and
the accumulated amount is utilized to provide various benefits
as mentioned below.

 BENEFITS:

1) ON RETIREMENT:
On Retirement of a member, the corpus (contributions plus
interest) is utilized to provide the pension as per his choice.

2) ON DEATH:
The Pension is payable on the life of the beneficiary. Corpus
is utilized towards the payment of pension of the type the
beneficiary may opt and the benefit so received is tax free. A
lump sum payable by way of death besides the pension, if

46
 the employer has taken Group Insurance Scheme in
conjunction with the Group Superannuation Scheme.

3) ON WITHDRAWAL:
He can get the equitable interest transferred to the
Superannuation Scheme of the new employer or opt for
immediate or deferred pension.

 PENSION OPTIONS PROVIDED BY LIC:

1. Life Pension ceasing at death.
2. Life Pension with Return of Capital and Group Pension
Terminal Bonus on death.
3. Life Pension guaranteed for 5,10,15 or 20 years and life
thereafter.
4. Joint Life Pension payable on the last survivor of the
employee and spouse.
5. Joint Life Pension payable to the last survivor of the
employee and spouse with return of capital on the death of
the last survivor. If desired, 1/3rd of the pension can be
commuted at vesting.

 ELIGIBILITY CONDITION:
It is not obligatory or statutory on the part of the employer to
provide for pension to all employees. It is entirely up to him
to decide to which class/ classes of employees he desires to
extend the scheme. The eligibility conditions may be defined
on the basis of designation or salary. (However, after the
categories are specified, employer cannot discriminate

47
 between the employees and thus extends the scheme
uniformly).

 CONTRIBUTION:
The maximum annual contribution that an employer can
make to the Pension Fund and Provident Fund is restricted
by the Income Tax Provisions to 27% of the annual salary
(basic plus D.A.) The annual contributions are treated as
deductible business expenses.

 WHO PAYS CONTRIBUTION?

Mostly the employer contributes, but is so desired, both the
employer and the employees may contribute, in which case
the scheme is called a Contributory Pension Fund Scheme.

5) Group Savings Linked Insurance Scheme :

 OBJECTIVES OF THE SCHEME:

• Protection at low cost without individual
evidence of health.
• Attractive returns on savings to meet post
retirement needs.
• Simple procedures for granting life cover to
large groups under one umbrella.

 INTRODUCTION OF THE SCHEME:

48
 a) The Scheme can be introduced
by employers provided certain percentage of employees is
willing to join the Scheme.

b) For the new entrants to the

Company, the membership of the Scheme is compulsory.

 PREMIUM:
It is decided on the basis of Group size and the occupation of
the group. Premium has two components i.e. Risk Premium and
Savings Premium. Risk Premium is utilized to offer life cover
and the Savings Premium is accumulated in members account.

 ACCIDENT BENEFIT:
Double accident benefit can be allowed to the extent of the Sum
Assured for an extra Premium.

 INTEREST ON SAVINGS
:
The present rate of interest allowed on saving portion of
premium is 8% compounding yearly.

 ELIGIBILITY TO JOIN THE SCHEME:

Any employee irrespective of his present state of health is
eligible to join the scheme subject to certain conditions. The
only insurability condition is that the employee should not be
absent on medical ground on the date of commencement of the
scheme. All employees who have not crossed the retirement

49
age are eligible to join the scheme. All future employees have to
join the scheme compulsorily.

 TAX BENEFITS:
Employees' total contribution, savings as well as risk premium is
entitled for income-tax rebate under Sec. 80C of the Income
Tax Act. The entire claim amount including interest earned
payable on retirement or leaving service or on death is free from
income-tax. The premium paid by the employer towards
insurance cover is treated as business expenses.

6) Group Leave Encashment Scheme:

 Funding of leave encashment:

End-of-the-year leave encashment facility available to
employees can be a huge liability to the company. So can be
Medical Leave Encashment, if provided for. To meet this need
of entrepreneurs and businesses, LIC has introduced Group
Leave Encashment Scheme. Just pay a yearly premium, fund
your leave encashment liability and let LIC take care of your
worries.

 The Features:
Group Leave Encashment Schemes (GLES) of LIC helps the
employers in funding of their lave encashment liability.

The salient features of the scheme are as follows:-

50
1. The Company will submit the employees' data and rules for
Leave Encashment. LIC will make actuarial valuation and
find out the funding requirements which shall be quoted to
the company. The company will contribute as per the advice
of LIC.

2. A uniform life cover per employee or graded cover will be

provided under One Year Renewable Group Term
Assurance Plan of LIC. A small term insurance premium will
be charged in addition to contributions for funding.

3. 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 credited to
the Running Account at the end of the financial year.

 Benefits:
1. On the exit of an employee or encashment of leaves during

the service the Leave Encashment amount will be paid from

the Fund of the scheme maintained with LIC.

2. On the death of an employee, in addition to his / her leave

encashment benefit, his/her family will be entitled to the
amount of Insurance Cover, which will be tax-free.

51
3. The Life Insurance Corporation of India will do the Actuarial
Valuation and will provide necessary certificate as per AS-
15.

4. The amount of Term Insurance Premium paid for Life

Insurance Cover will be treated as business expenses.

7) Group Mortgage Redemption Assurance Scheme :

‘Group Mortgage Redemption Assurance Scheme’, is a Group
Insurance Scheme for the borrowers of Housing/Vehicle Loans
from Financial Institutions where Loan is recovered under EMI.
Under the Scheme, the premium is payable in a single
installment covering a decreasing life cover. Insurance cover
every year will be almost equal to the loan outstanding at the
anniversary date of each borrower.

Under the scheme, the premium depends upon:

1. Age (nearer Birthday) at entry of the member into the
Scheme.
2. Outstanding loan amount at entry date.
3. Term of loan.
4. Schedule of repayment.
5. Rate of interest with which the loan was availed.

Any borrower may become member of this scheme. The

minimum term of assurance is 3 years. Existing Borrowers can
join the scheme with certain conditions within 6 months of the
commencement of scheme.

52
In case of death of the member during the coverage period, life
cover on the anniversary date proceeding the date of death is
payable. The claim proceeds are used to square off the
outstanding loan.

8) Group Critical Illness Rider :

Critical Illness product (accelerated benefit) is basically offered
as an optional Rider benefit to all Employer-Employee group
policyholders (both existing and new schemes) along with
Group term insurance schemes i.e. OYRGTA (One year
renewal group term assurance) type schemes. Schemes along
with which the rider can be given shall include Group insurance,
Group Gratuity (CA), Group Leave Encashment and Group
insurance in conjunction with Superannuation. The Benefit will
not be extended to spouses or dependants. Only full time
permanent employees who are actively at work will be eligible
for Critical Illness cover. The relevant premium is to be paid by
the Group Policyholder.

 FEATURES:

1. The Group critical illness rider benefit to employees is

given as an add on benefit to the Group policy which
has an element of life cover.

2. The Group Critical Illness rider allowable for each

member shall be a minimum of 20 % of sum assured
under the base plan and shall not exceed 100% of the
sum assured under the base plan subject to minimum

53
 of Rs. 50 Thousands and maximum of Rs 20 lac per
member.

3. All members of the attached policy should participate at

inception and all eligible new members should
compulsorily participate.

4. The diseases covered under the rider (subject to

certain exclusions) are :

1. Cancer
2. Coronary Artery (Bye pass) Surgery
3. Heart attack (Myocardial infarction)
4. Stroke
5. Kidney failure (End stage renal disease)
6. Aorta (Surgery of Aorta)
7. Heart valve replacement
8. Major Burns.

 BENEFITS :

1. The Critical Illness Accelerated benefit is payable upon

the first incidence of any of the 8 specified diseases and
evidenced as per the diagnostic criteria specified. The rider
shall terminate on payment of the Critical Illness benefit.

2. The Group Critical illness (Accelerated) Benefit pays a

lump sum amount as a percentage of Sum assured out of

54
 the Sum assured under the life cover in the event of
occurrence of 8 diseases covered under the rider.

3. No Critical Illness Benefit shall become payable to a

member if the disease occurs within 90 days of the start of
the coverage for that member of the scheme. This period of
90 days shall be called “Waiting period”.
4. In case of death nothing is payable under this rider.
However, under the base plan (i.e., the scheme on which the
rider is opted for) benefits as under shall become payable :

• A benefit equal to base sum assured if no

critical illness benefit is payable or has been paid
earlier.
• If critical illness benefit is payable or
already paid, the benefit is reduced by the amount of
critical illness benefit payable or already paid. In other
words, the difference between the base sum assured
and the critical illness benefit already paid is payable on
death.

 EXCLUSIONS:
1. Diseases in the presence of an HIV infection.

2. Diseases that have previously occurred in the life of the

member of the scheme i.e. the benefit is payable only if the
disease is a first incidence , regardless of whether the
earlier incidence occurred before the individual was

55
 covered or whether the insured was covered by us or
another insurer.

3. Any disease occurring within 90 days of the start of the

coverage for each member of the scheme. (I.e. during the
waiting period).

4. No payment will be made for any claim directly or indirectly

caused by, based on, arising out of, or howsoever, to any
Critical Illness for which care, treatment, or advice was
recommended by or received from a Physician, or which
first manifested itself or was contracted before the start of
the policy period, or for which claim has or could have been
made under any earlier policy.

5. Any congenital condition.

6. Alcohol or solvent abuse or taking of drugs, narcotics or

psychotropic substances unless taken in accordance with
the lawful directions and prescription of a registered
medical practitioner.

7. Failure to seek or follow medical advice.

8. War, invasion, act of foreign enemy, hostilities(whether war

be declared or not),armed or unarmed truce, civil war
,mutiny, rebellion, revolution, insurrection, military or
usurped power, riot or civil commotion, strikes.

56
 9. Taking part in any naval, military or air force operation
during peace time.

10. Participation by the member of the scheme in any flying

activity, except as a bona fide, fare-paying passenger of a

recognized airline on regular routes and on a scheduled
timetable.

11. Participation by the member of the scheme in a criminal or

unlawful act.

12. Engaging or taking part in professional sport(s) or any

hazardous pursuits, including but not limited to , diving or
riding or any kind of race, underwater activities involving
the use of breathing apparatus or not, hunting,
mountaineering, parachuting , bungee-jumping.
13. Nuclear contamination, the radio active, explosive or
hazardous nature of nuclear fuel materials or property
contaminated by nuclear fuel materials or accident arising
from such nature.

14. Intentional self inflicted injury, suicide or attempted suicide,

while sane or insane.

15. Existing diseases are not covered.

SOCIAL SECURITY SCHEMES:

57
1) JanaShree Bima Yojana (JBY):
The objective of the scheme is to provide life insurance
protection to the rural and urban poor persons below poverty
line and marginally above the poverty line.

 ELIGIBILITY:
A person who is
• Aged between 18 and 59 years.
• Below or marginally above poverty line
• A member of any of the approved
vocation/occupation groups

 NODAL AGENCY:
A State Government Department which is concerned with the
welfare of any such vocation/occupation group, a Welfare
Fund/ Society, Village Panchayat,NGO,Self-Help Group,etc.

 MINIMUM MEMBERSHIP SIZE:

Twenty five.

2) Shiksha Sahayog Yojana :

This is a scholarship scheme launched on 31.12.2001 for the
benefit of children of members of Janashree Bima Yojana.

 ELIGIBILITY:

Students studying in ix to xii standards, whose parents are

covered under Janashree Bima Yojana. If a student fails and
is detained in the same standard, he will not be eligible for
scholarship for the next year in the same standard.

58
 BENEFIT:
Scholarship of Rs 300/- per quarter per child will be paid for
maximum period of 4 years. The benefit is restricted to two
children per member (family) only.

 PREMIUM:
No premium is charged for the scholarship.

 HOW TO CLAIM SCHOLARSHIP:

The Nodal Agency will identify the students. The member of
Janashree Bima Yojana whose child is eligible for
scholarship has to fill up an application form (available with
Nodal Agency) and submit to the Nodal Agency. The
applications duly filled up and certified will be sent along with
the list of the beneficiary students by the Nodal Agency to
the concerned LIC, P&GS Unit for disbursement of
scholarship/s. The scholarship/s will be disbursed to the
beneficiary students through the concerned Nodal Agency.

As only a limited number of beneficiaries will be provided

scholarship under the scheme, the selection for eligible
students will be made on the basis of poorest of the poor.

The scheme will be administered through Pension and

Group Schemes Department of LIC of India.

3) Aam Admi Bima Yojana :

59
In a rural landless household, when everyday living is a
struggle, it is difficult to face life with a smile. And it becomes
even more difficult when the future of your family is uncertain.

AAM ADMI BIMA YOJANA, a prestigious scheme of the Central

and State / Union Territory Governments and administered by
LIC brings a ray of hope and smile to these households.

 NODAL AGENCY :
The Nodal Agency shall mean the State / Union Territory
Government appointed to administer the scheme.
The Nodal Agency shall act for and on behalf of the insured
members in all matters relating to the Scheme.

 IDENTIFICATION OF BENEFICIARIES:
The State / Union Territory Government in consultation with
the Panchayats will identify the persons to be covered under
the scheme. All the members will be provided with an identity
card by LIC with an unique identity number.

 ELIGIBILITY:
The member should be aged between 18 and 59 years.
The member should be the head of the family or one earning
member in the family of rural landless household.

 AGE PROOF:
• Ration Card
• Extract from Birth Certificate
• Extract from School Certificate.

60
 • Voters list
• Identity Card
In case of doubt, a certificate from Primary Health Centre can
be accepted as authentic proof of age.

61
 CHAPTER 5
CONCLUSION

Key to a successful business is keeping the employees motivated.

Happy and secured employees work better, which in turn reduces
the employer’s tension. Group Insurance is an insurance which
covers a group of people (like employees of a common employer
or professionals in a common group).

The concept of Group Insurance emerged and flourished in the

western and developed countries. While it took a late start in India,
the major developments were observed only after Independence.
The present form of Group Insurance originated in the United
Stated of America in the early 19th century.

The concept of Group Insurance was introduced; lot of hostility

came from different sections of public. The scope of Group
Insurance has been broadened with the passage of time. The
Group Insurance plays an important role in enabling the
employers, the employee’s benefit schemes at case. However, the
more demanding role the Group Insurance Schemes have to face
is to provide protection and coverage to those who are self
employed.

Industrialization has drastically changed the Socio-economic

aspects of human life around the world. Social and economic
insecurity has become the main cause of concern for individual,
employees and governments. Social Security, Welfare legislations
and employee benefits to a great extent have attempted to
address these issues. Employee benefit schemes provide
adequate financial security in two events namely premature death
and excess longevity. Group Insurance has become an
indispensable part of the employee benefit package which
provides financial benefit at a very low cost.
BIBLIOGRAPHY:

1) GROUP INSURANCE
- THE ICFAI UNIVERSITY

WEBLIOGRAPHY:
1) www.ask.com

2) www.licindia.in