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Employer-Employee Insurance
An Employer/owner has an Insurable Interest in an Employee’s life and vice-versa.
(Insurance Act 1938 as amended up to date)
Employee Retention Problem
Human resources are the highest assets for any organization, but When an experienced and productive employee leaves the organization, then the organization incurs 2 types of losses-
- If they join your competitors, then they may leak your business secrets.
- Recruitment & Training of new employees involves time and money.
But We have the solution! You can retain your Employees for 5-20 Years. Know How?
What is Employer-Employee Insurance?
Under Insurance under an employer-employee concept is the love and concern given by an employer to his/her Employee who works hard with sheer dedication for the achievement of various goals of the organization effectively and efficiently.
Under this, the Company buys an insurance policy where an employee is a beneficiary.in today’s times, it’s tough to retain a productive employee. This concept act as a reward program for the Employee, which motivates the Employee to work in the organization for a long time. Such a concept runs under the principle that the Employer has an insurable interest in his/her employees & vice-versa.
Generally, many find this concept only for the betterment of the Employee, but it benefits both Employer and the employees.
It is seen that some people do malpractices to save on income tax. Sometimes, they come under the scrutiny of the income tax department and are liable to pay heavy penalties.
But, under Employer-Employee Insurance a businessman can save unlimited tax u/s 37(1) of the Income Tax Act 1961.
Benefits to Employer
- Increase in the loyalty of the Employee or worker.
- To minimize Employee attrition rates which hurt business. (Like the expenses of recruiting and training new employees are very high).
- Enjoy Tax Rebates u/s 37(1) on the premium paid.
- An attractive incentive to retain TALENT.
Benefits to Employee
- Provides employees with long-term and short-term security against premature death, illness, accident/disablement.
- In addition to benefits from the Company on retirement, the Employee gets Maturity, Claim, or Pension for lifelong.
- The Employee need not bother about buying and administering the policy.
- The Employee will enjoy all benefits as tax-free u/s 10(10)d.
An employer can also get a policy under the Scheme and avail of all its benefits.
Let’s know How!
If an employer himself/herself is on a salaried basis like there are directors, chairman, and principals employed on the salaried basis with a shareholding in the organization can benefit under this Scheme.
Tax Implications
- Premium paid by Employer is taken as a business expense and is a deductible expense U/s 37(1) of IT act.
- Premium paid by the Employer is considered ‘perquisite’ in the hands of the Employee and hence will become a part of ‘income payable to income-tax for the Employee, u/s 17(2)(V) of IT act.
- Premium paid by the Employer can be claimed for IT Rebate U/s 80C by the Employee.
Eligibility
- The proposal will be treated as an individual proposal from the employee concerned.
- The medical examination/special reports will be decided on the basis of SUC for the individual life proposed (employee).
- The maximum eligible insurance for the employee will be based on his/her individual income.
Condition on Beneficial Ownership
- Total shareholding of the Employee, his/her spouse, and minor children in the Company should be less than 71 %
- The entire shareholding of the Employee in the Company should be less than 51 %
Conditions/Restrictions referred to the Scheme
- At first, the Employee is the life assured while the Employer is the proposer. Typically, three to five years is chosen as the designated period during which the Employer will keep the Insurance and pay the premiums. Even after the “Specified Period,” the Employer may still pay the Employee’s premiums.
- The Employer should agree to assign the policy to the Employee in full as long as the Employee continues to work for the organization for the time the Employer specifies.
- Suppose the employee/worker leaves the Company within the allotted time. In that case, the Employer has two options: assign the policy absolutely to the Employee as part of the terminal benefits, or surrender it for its surrender value to the insurance company.
- The Employee generally permits no withdrawals (surrenders/loans) without the Employer’s consent.
Requirements
- Forms 300 or 340 for proposals. If a 340 is submitted, the assignment details must also be included. If an employer is a proponent, the policy will be assigned to the life assured (Employee) following mutual agreement.
- The proposal should be signed by a person authorized by resolution.
- Book of Accounts or IT orders for the Company’s last three years to check the organization’s profitability as the premium liability lies with the Company.
- Copy of the Board resolution- Employer to obtain approval from the board or the sources authorized to act for and on behalf of the Company for starting the Employer-Employee Scheme
- A separate letter shall be obtained from the Employer stating the object of Insurance.
- The limitations he wants to put in place regarding the policy’s loan, surrender, and other actions (usually, these should not go beyond 5 years from the date of the policy ).