What is an employee employer insurance scheme?

Running a business isn’t just about profits—it’s also about taking care of employees. Workers' interests and safety must be protected to ensure a healthy workplace for them. Securing employee employer insurance is a step towards this. It is a financial safety net that benefits both employers and employees, ensuring financial stability during unforeseen events like illness, disability or death of a worker.

Employee employer insurance encompasses various schemes like a group personal accident cover and workmen’s compensation policy (WC policy). Businesses can opt for any, depending on their needs.

Employer employee scheme – Eligibility

An employer employee insurance scheme is usually available to businesses registered as sole proprietorships, partnerships, private limited companies and public limited companies. Here’s a quick breakdown of eligibility:

• Any legally registered business can purchase the scheme.
• Employees must be on the company’s payroll.
• A minimum number of employees may be required, depending on the insurance provider.

Benefits for employers

Offering an employer employee insurance isn’t just about ticking a corporate social responsibility box—it brings real advantages to businesses.

1. Attracts and retains talent

Employees today look for more than just salaries; they seek job security and benefits. In a competitive job market, businesses that offer employer employee insurance plans are likely to attract top talent.

2. Enhances employee loyalty

When employees feel valued, they are more likely to stay longer. Insurance coverage reassures them that their employer cares about their well-being. This can lead to a higher retention rate and reduced hiring costs for businesses.

3. Tax benefits

The premiums paid for an employee employer insurance policy are considered business expenses, reducing the company’s taxable income.

4. Financial protection

If an employee meets with an unfortunate event, the financial burden does not fall on the employer. The insurance payout supports the employee’s family, ensuring peace of mind for both parties.

5. Boosts productivity

When employees don’t have to worry about medical expenses or financial instability, they can focus better on their work. A secure workforce is a productive workforce, contributing more effectively to business growth.

6. Compliance with regulations

Many businesses are required to offer employee benefits, including insurance, under labour laws. A proper employee employer insurance policy ensures compliance with legal requirements and avoids potential penalties.

Benefits for employees

While employers gain tax benefits and a motivated workforce, employees enjoy financial security and peace of mind.

1. Life coverage

In case of an employee’s unfortunate demise, the insurance payout is given to the person’s family, ensuring financial stability. This acts as a crucial financial backup, especially for those who are the sole breadwinners of their families.

2. Additional health benefits

Some employee insurance schemes include health insurance, covering hospitalisation costs, critical illness and more. Employees can avail of cashless treatments at network hospitals, reducing the financial burden of medical emergencies.

3. Retirement benefits

Depending on the plan, employees may receive maturity benefits, which act as a savings or investment scheme. This helps employees build a financial cushion for their post-retirement life.

4. Disability benefits

If an employee suffers a disability due to an accident or illness, he may receive financial support. Disability benefits can include monthly payouts or lump-sum payments to cover medical expenses and loss of income.

5. Mental well-being support

Many insurance schemes now include mental health coverage, offering counselling and therapy sessions. This is crucial in today’s fast-paced work environment, where mental health issues are becoming more common.

6. Family coverage

Certain employee employer insurance policies allow employees to include their spouse and children under the plan, ensuring overall family security.

How does employer employee scheme work?

Understanding how an employee employer insurance scheme functions is crucial for both employers and employees.

Step 1: Employer purchases the policy

• The employer selects an insurance provider and buys a group policy tailored to their workforce’s needs.
• Factors like sum insured, coverage options and premium payments are finalised.

Step 2: Employees are covered

• All eligible employees are covered under the policy from the date of joining.
• Employees receive details of their coverage and how they can make claims.

Step 3: Premium payment

• The employer pays the premiums, which can be structured as an annual or monthly payment.
• Some employers recover a small portion from employees as a contribution.

Step 4: Assignment of policy

• Some policies may have a lock-in period. After the set time (usually a few years), the policy can be transferred to the employee’s name.
• Workers can continue the policy even after leaving the organisation.

Step 5: Claims process

• If an insured event occurs (such as death, illness or disability), the insurance provider processes the claim and provides the payout.
• Employees or their families must submit the necessary documents for claim processing.

Step 6: Maturity benefits

• Some policies offer savings or investment benefits that employees can access after a certain period.
• Employees may receive a lump-sum amount upon policy maturity.

Tax benefits

Both employers and employees can enjoy tax benefits through the employee insurance scheme.

For employers

• Premiums paid towards an employer employee insurance scheme are considered business expenses and can be deducted from taxable income under Section 37(1) of the Income Tax Act 1961.
• Employers save on corporate taxes, allowing more budget allocation for other business growth activities.

For employees

• If the policy is assigned to an employee, the maturity benefits may be tax-free under Section 10(10D).
• If the worker receives a payout due to a claim, it is usually tax-free.
• Employees can claim deductions under Section 80C for premiums paid after assignment.

Conclusion

A well-structured employee employer insurance scheme benefits both employers and employees. It is not just a perk but a necessity for many companies. Workforces feel more secure, and businesses gain tax benefits and goodwill. For workers, it ensures financial protection and enhances job satisfaction. With such strong advantages, implementing an employee insurance scheme is a smart choice for any business.

Disclaimer: The information provided in this blog is for educational and informational purposes only. It is advised to verify the currency and relevance of the data and information before taking any major steps. Please read the sales brochure / policy wordings carefully for detailed information about on risk factors, terms, conditions and exclusions. ICICI Lombard is not liable for any inaccuracies or consequences resulting from the use of this outdated information.