CHAPTER 10

GROUP INSURANCES

Group InsuranceAn
Introduction
Provides Insurance Cover to large
number of individuals.
Single policy known as Master policy.
Contract is between the Insurer and
Representative of group.
May be EmployerEmployee Group.
May be Associationmember group.
May be CreditorDebtor Group.

Example for Groups

For employeremployee group :
LIC and its employees.
For Creditordebtor group:
Bank and persons who have taken housing loan
from the bank (insurance cover will be limited to
outstanding loan).
For AssociationMember Group :
National Federation of Insurance Field Workers
of India (NFIFWI) and its members. A Group
Insurance scheme is there for them.

Group Insurance History

Development since early 1960s
Originally confined to Employer
Employee Groups only.
Homogeneous Attributes (Common
Characteristics) like similar Profession,
members of Co-op. Society, etc.
Number of people covered Growing at a
faster rate than conventional.
Easy to reach larger numbers.

Group InsuranceA Social

Security Instrument
Social Security concern of Govt.s .
Govt.s provide medical care, entire living
expenses, unemployment allowances.
Cost of these increasing & it is convenient
to use Insurance Cos .
InsurerNatural Instrument to take over
because of powerful social dimension of
insurance business.

Social Welfare in India

Comparatively at elementary level.
LIC provides small amounts of insurance
cover to Landless Agri. Labourers ,
handloom workers, rickshaw pullers,
Village artisans.

What is Group Insurance?

Insurance Cover to large number of individuals
under single Master Policy.
Contract between Insurer and body
representing individualsemployer or
association.
The body is policy holder and the individuals
are beneficiaries.
Amount & terms of Insurance negotiated by
policy holder not beneficiaries.
Benefits apply uniformly on determined bases
to all individuals.

What is Group Insurance (contd)?

Premium will be paid by Policy holder .
He may or may not collect the same from
individuals. ( contributory or non-contributory).
If individuals are contributing it may be full or
partial.
In many employer schemes, entire premium
paid by employer.
If premium paid by employee, it may be by
salary deductions also.

Group Insurance Vs. Salary Savings

Schemes
Ownership of the policy is with employer and
not the employee
Extent of Cover and terms are determined by
the employer and not by any individual.
In a salary savings scheme policy the
ownership remains with the policy holder and
the life cover and terms are decided between
him and insurer.

Group Insurance
Advantages
Number of persons and a single contract,
administrative costs are very low.
Coverage not a choice of individual
concerned, so no adverse selection.
Rules of medical examination are very
liberal.

Essential FeaturesGroup Insurance

Group not formed for purpose of taking
advantage of GI scheme.
Entry into and exit from the group for reasons
other than Insurance cover.
There will be a minimum members at the
outset, say 25. Many cases it will be in
hundreds.
Beneficiary not to choose Insurance cover
Amount determined by some criteria and
applied uniformly to all members.

Essential FeaturesGroup Insurance

(contd)

Cover may depend on

(a) Age
(b) Rank
(c) Income
(d) Years of membership.
If cover depends on Age or Rank, then all persons of
same age or rank will get same Insurance cover.
If cover depends on Income, cover can be fixed
multiple of income.
Income depending on output may be suitable for
deciding insurance cover for farmers, milkmen,
beedi worker, etc.

Essential FeaturesGroup Insurances

(contd)
Inclusion of new members, members have no
choice.
Members fulfilling specified criteria should
compulsorily join the group.
At introduction of scheme, existing members
will be given a choice, to be made within a
specified period, which will be final.
Individual lives not separately assessed for risk.
Underwriting group as a whole.

Essential FeaturesGroup Insurance

(Contd)
Premium will change from year to year.
Reason new entrants and exits. Exits may be
due to death, resignation, etc.
Amount of cover also vary because of age,
income, rank ,etc. of members.
Premium may change due to mortality rate
(number of deaths) in the group.
If experience is better than expected benefit
passed on to policy holder by way of reduction
in prem. (Profit sharing)

Various Group Insurance Schemes

One Year Renewable Group Term Insurance
Scheme (OYRGTIS) is one of earliest
schemes.
Insurance cover on life of members is for
specific amount, payable on death.
Simplest and cheapest of all schemes.
Particularly beneficial to young, whose gratuity
and Provident Fund Accumulation will be
negligible.
Also helpful to cover loan amount under hirepurchase/mortgage (Amount of cover equal to
outstanding loan).

Various Group Insurance Schemes

(contd) (GSLI)
Group Savings-Linked Insurance Scheme
(GSLI) offered to employers for benefits of the
employees.
Contribution consists of two elementssavings
element and premium amount for a term
insurance cover.
Savings element earns interest at a stated rate
and will be paid on death, resignation or
retirement of the employee.

Example for GSLI

LIC and its employees have a GSLI scheme.
If contribution is Rs.100, then Rs.65 goes to
savings and Rs.35 goes to the term insurance
premium.
In case of death, the insurance amount along
with accumulated saving amount will be paid to
claimant.
In case of retirement, the accumulated savings
portion will be paid to the employee.

Various Group Insurance Schemes

(contd) (GGS)
Group Gratuity Schemes are also offered to
employers and is related to gratuity.
Gratuity is amount paid by the employer to
employees on retirement or death of employee,
after a long service.
Payment of Gratuity compulsory due to
Payment of Gratuity Act, 1972.
Amount of gratuity is linked to number of years
of service and salary drawn during the last few
years of service.

Various Group Insurance Schemes

(contd) (GGS)
Group Gratuity Scheme provides two
advantages.
(i) Guarantees a certain amount of Gratuity,
which would be more than what the rules
provide, particularly for those who die young
with less service.
(ii) It is easier to fund the gratuity liability of the
employer.
Actuarial advice is available from the Insurer
about adequacy of the funds.

Various Group Insurance Schemes

(contd) (GGS)
In the absence of GG Scheme employer has
three way to pay his gratuity liability.
i) Pay as and when due, not a prudent business
practice as amount can vary from year to year
based on age profile of his employees .
ii) Create internal reserve. Better method, but
reserve funds may be used for other purpose in
case of business emergency.
iii) Set up a gratuity fund and create a trust to
administer the funds.

Various Group Insurance Schemes

(contd) (GGS)
Difference between employer setting up fund
and creating trust and Group Gratuity Scheme
with insurer is that
(a) Trustees hand over funds to the insurer who
has better capabilities of managing the funds.
(b) There will be an insurance cover to provide
additional funds for those who die young.

Example For Group Gratuity Scheme

An employer enters into gratuity scheme with
an Insurer. The fund is handed over to the
Insurer for management.
The Insurer carries out valuation every year to
assess liability of the employer towards past
and future service gratuity of his employees
and requests for payment of Contribution.
The Insurer will pay claims of gratuity for death,
retirement and resignation of the employees on
behalf of employer.
There will be a insurance cover also on the life
of members.

Various Group Insurance Schemes

(contd) (GSS)
Group Superannuation Schemes are also
offered to employers and helps employer in
payment of pensions to employees.
Need for Pension has grown with increasing
longevity of people.
Lump sum benefits like Gratuity and PF may be
inadequate for longer life span.
Group Superannuation Schemes are intended
to help employers administer pension funds.

Various Group Insurance Schemes

(contd) (GSS)
Employer can manage Pension liabilities in
different ways as that of Gratuity.
Advantages of Group Scheme offered by
insurer are
(a) easier administration
(b) Availability of Actuarial and
Investment Expertise.
(c) Better benefits for those who die young may
be provided.

Various Group Insurance Schemes

(contd) (GSS)
Scheme can be managed in two ways
(i) Fix the contribution from the employer as a
percentage of salary. Benefit available to the
employees would be equal to what this
contribution can buy.
(ii) Benefit to be given to employees is fixed and
appropriate contribution is collected. Normally
benefit will be fixed to a fixed proportion of final
salary drawn.

Example For Superannuation Scheme

An employer enters into Group Superannuation scheme with an insurer for benefit of
employees and creates a trust and hands over
funds to the insurer.
Every year contribution in respect of member
will be paid to the Insurer, who will accumulate
it at an interest rate.
As and when pension liability becomes due
insurer starts paying pension on agreed terms.
There will a nominal insurance cover, which will
be used for pension for dependent in case of
death of member.

Various Group Insurance Schemes

Special SchemesEDLI
Employees Deposit Linked Insurance (EDLI)
scheme is applicable to all establishments and
undertakings contributing towards PF under
Employees PF and Misc. Provisions Act, 1952,
with effect from 1.8.1976 unless exempted
under Sec.17(2A) of the Act.
The scheme provides insurance cover to an
employee linked to his balance in PF account,
subject to a maximum of Rs.35000.

Various Group Insurance Schemes

Special SchemesEDLI
The Act empowers Central Provident Fund
Commissioner to exempt an employer from
EDLI, if he opts for GI scheme of LIC, which is
more beneficial to the employees.
Insurance cover ranges from Rs.11000 to
Rs.37000.
Premium depends on Average age, Occupation
& size of the group.
Advantages of low premium & easy settlement
of claims, compared to PF.

Various Group Insurance Schemes

Special SchemesSocial Security
Group InsuranceConvenient medium for
Govt. for its social security goals.
L.I.C has LALGI (Landless Agricultural
Labourers Scheme on behalf of Govt.
It provides term insurance cover of Rs.2000
each to families of landless agricultural
labourers, who do not own land and do not
have any inheritable rights to agri. Land.
Entire cost is borne by the Govt.

Various Group Insurance Schemes

Special SchemesGLES
Amendments to Companies Act, in 1988 and
accounting standards require employers to fund
the liability in respect of leave encashment
facility.
LICs scheme enables funding (including
Medical Leave).
Provides additionally an insurance cover
ranging from Rs.5000 to Rs.25000 payable to
beneficiaries of employees who die while in
service.

Retirement Schemes
Pensions paid by Central & State Govts have
increased from about Rs.12000 Cr. in 1996 to
about Rs.46000 Cr. in 2002.
Apart from increase in wage rates and inflation,
a major contributory factor is increase in life
spans.
Average expectation of life has gone up from
53 in 1980 to 63 by the year 2000.
Employers, including Government, find it
difficult to bear the increasing burden of retired
employees.

Retirement Schemes (contd)

Employers purchase annuities from a life
insurer as and when they have to release
pensions.
Insurer pays the annuities directly to
pensioners.
Benefits tailored to requirements of employer
and pensioners.
Purchase price decided by employer, based on
policies and terms of employment.
Given purchase price various options for
disbursement of annuity can be there.

Retirement Schemes (contd)

Variations would be, when to begin and when it
should end.
It could end on death of pensioner or continue
as long as spouse is alive.
These options are left to preference of the
pensioner.
Voluntary Retirement Schemesemployee
receive substantial amounts from the employer.
Group Insurance schemes channelise such
funds to steady & assured flow of income.

Health Insurances
Health Insurance, according to laws in India, is
part of non-life business.
Life insurers dont cater to insurance relating to
sickness, except to a limited extent as rider to
individual policies.
Cannot become a subject matter of Group
Insurance policy in India.
If law changes in conformity with provisions in
other countries, life insurers will find big scope
for a new line of business, in individual & group
policies.

Agent Role in Group Insurance

Group Insurance has developed in India since
the 1960s.
Number of lives covered is not much lower than
individual policies.
Scope for this business is very vast.
Practicable method to extend the benefits of
insurance to large number of people.
Corporates benefit from insurers expertise.
Agents conversant with principles under-lying
group insurance might be able to innovate new
ideas and develop schemes.

THANK YOU

M. J. MALIK
S.B.A.
836 B.O.
AHMEDABAD D.O.
09879094925
lic.malik@gmail.com