Page 138 - DCOM309_INSURANCE_LAWS_AND_PRACTICES

Unit 8: Life Insurance

Notes

Notes The salient features of Group Insurance are as follows:
The group should be homogeneous and the insurer may prescribe minimum number
depending on the scheme.

The contract is between the Insurer and the employer/group/association.
A single policy called master policy is issued covering all the members and spelling
out the relevant terms and conditions.

The group must have been formed other than for the purpose of taking out Insurance
& the group should already exist.

The scale of benefits is pre decided depending on the salary/grade of the employee.
The individual employee has no choice of selecting the sum assured.
At the inception of the scheme, an option is given for members to join the scheme.
But new entrants have to compulsorily join the scheme.

The selection is based on the average age of the group.
Minimum Insurance cover will be given without strict proof of insurability.

The premium may be contributory or non-contributory.
The employer is eligible to treat the premium as expenses and claim tax exemptions
The contract is renewable every year. At the time of renewal, based on the previous
years’ experience, the premium may get revised. This is called experience rating

The named person of the employer will deal with the Insurer in all servicing matters.
Types of Group Insurance Schemes

One year renewable term assurance: Here the contract is for one year renewable every year. In
the event of death of any member of the group during the year, the agreed sum assured is paid.

Group Gratuity Scheme

As per Gratuity Act 1972, an employer is legally bound to pay Gratuity for all employees who
put in a minimum service of 5 years. Wherever the employer appoints not less than 10 people,
the scale is at the rate of 15 days wages for every year service completed, subject to a maximum
of ` 3,50,000. The employer has to therefore make provision in advance. The methods may be:
Make payments as when it arises called as pay as you go method.

Can create an internal reserve equal to the actuarial valuation of the liability.
Set up a gratuity fund with trustees to manage.
Set up a fund and transfer the same to Insurance Company under a Group Gratuity scheme.
Of the above methods, the first two methods are quite risky in the sense that the fund may be
misused in terms of financial difficulties. The fourth method would be very prudent, since an
Insurer has a huge portfolio and can diversify his investments and assure a guaranteed return.
The Insurer has also qualified people to calculate the liability accurately.

LOVELY PROFESSIONAL UNIVERSITY 133