Do you know that you pay a contribution of ₹900 per employee per year to the EPF Department for providing Life Insurance coverage? If the basic salary of the employee is less than ₹15000, the contribution will be calculated as 0.5% of the employees basic salary per month.
On death of an employee during employment, the nominee of the employee receives between ₹2.5 lacs and ₹7 lacs based on calculations as below.
How does the benefit under EDLI ( Employee Deposit Linked Insurance scheme ) calculated?
The average monthly wages drawn (subject to a maximum of ₹15,000), during the twelve months preceding the month in which the employee dies, are multiplied by 35 times plus 50 percent of the average balance in the account of the deceased in the provident fund during the preceding 12 months or during the period of his membership, whichever is less. The minimum payable will now be ₹2.5 lakh while the maximum will be₹7 lakh. This is as per the latest notification dated 28 April 2021
All employees who subscribe to the EPF scheme automatically get enrolled in the EDLI scheme.
Section 17 (2A) allows employers to opt out of the EDLI program by taking out a better-coverage group term life insurance policy.
When should a company take a group term life in lieu of EDLI scheme ?
If the Group Term Life Insurance premium payable by the employer is less than the total EDLI contribution being paid by the employer to PF Department.
For an employee of 30 years and earning more than ₹15000 basic salary the insurance premium for seven lacs cover will be usually less than ₹900 per year. The insurance premiums are linked to the age of the employee.
For the same employee the PF contribution towards EDLI will be ₹900 which is calculated as 0.5% of basic salary subjected to a maximum of ₹75 per month.
If the employer is already opting for a separate Group Term Life cover, it is a wise idea to take up a separate “Group Term Life policy in lieu of EDLI” from the same insurer. During the time of the claim, HR will only be dealing with one entity rather than two. The claims process from an insurer is a lot simpler and faster.
Just in case if you have this doubt about Group Term Life policy -
Claim amount received by employee is tax exempt under Group Term Life policy.
Premium paid by the employer is treated as normal business expenses for Income-Tax purposes.
Steps to Introduce Group Health Insurance Scheme
Put up notice for the knowledge of the employees that you are going in for Group Term Life Scheme in lieu of EDLI. Apply to the Regional Provident Fund Commissioner under Sec.17 (2A) of the E.P.F. and M.P. Act 1952 to exempt you from EDLI Scheme. The application should be accompanied by the prescribed requirements including the Rules of the Proposed Group Insurance scheme. Central PF Commissioner has authorized the R.P.F.C. to grant exemption from the 1st of the month in which the application for relaxation is submitted. Ethika also offers the necessary guidance and assistance to get the application processed.