In today’s competitive business world, attracting and retaining top talent goes beyond good salaries. Offering additional benefits like an employer-employee life insurance policy reflects a company’s commitment to its workforce. This arrangement not only provides financial security to employees and their families but also brings tax and goodwill advantages to the employer.
Let’s explore how employer-employee for life insurance works and why it’s gaining traction among forward-thinking organizations.
1. What Is Employer-Employee Life Insurance?
An employer-employee life insurance policy is when a company buys life insurance for an employee, pays the premium, and usually receives the benefits unless agreed otherwise.
Quick Overview:
- The employee is the life insured
- The employer is the policy owner
- The relationship must be documented formally
- The plan can be transferred to the employee later (with terms)
2. Why Businesses Choose Employer-Employee Life Insurance
Companies opt for employer-employee for life insurance not just for compassion, but for long-term business planning.
Key Advantages:
- Enhances employee retention and loyalty
- Offers tax benefits under employer-employee insurance provisions
- Useful for funding key personnel coverage
- Demonstrates a strong people-first culture
3. Life Insurance Benefit for Employees
This structure allows employees and their families to enjoy life insurance benefit for employees without paying premiums themselves.
Benefits Include:
- Financial safety net for family
- No impact on salary or benefits
- Option to own the policy after leaving the company
- Peace of mind, especially in high-risk job roles
4. Corporate Life Insurance Plan Options
Organizations can choose different formats of corporate life insurance plans based on their budget and employee hierarchy.
Common Options:
- Term Plans: Affordable, high cover
- Endowment Plans: Fixed maturity value
- ULIPs: Market-linked returns with life cover
- Keyman Insurance: For directors, founders, or senior executives
5. Tax Benefits Under Employer-Employee Insurance
This insurance setup offers meaningful tax benefits under employer-employee insurance for both parties.
| Party | Tax Benefit |
|---|---|
| Employer | Premiums paid are treated as business expenses under Section 37(1) |
| Employee | No taxable perquisite unless the policy is assigned to the employee |
| On Assignment | Maturity benefits may be tax-free under Section 10(10D), if conditions are met |
Always consult a tax advisor to stay updated with current rules.
6. When to Consider Employer Provided Insurance Coverage
Offering employer provided insurance coverage is ideal for:
- Startups wanting to offer cost-effective benefits
- SMEs looking to retain key people
- Corporates rewarding long-term employees
- Businesses in high-risk sectors (construction, logistics, manufacturing)
7. Customization and Flexibility
Companies can tailor plans based on employee level, contribution, or designation. Policies can include riders like critical illness, accidental death, or waiver of premium.
What You Can Customize:
- Sum assured per role or department
- Premium tenure and payment schedule
- Policy assignment rules on resignation or retirement
- Choice of insurer and product type
8. How to Set Up an Employer-Employee Life Insurance Policy
Setting up the policy requires clear documentation and internal approvals.
Steps Involved:
- Define the relationship: Draft a formal agreement between employer and employee.
- Choose the plan: Select the type and tenure of the policy.
- Underwriting: The employee undergoes basic health checks.
- Policy issuance: The employer pays the premium; policy is issued in the employee’s name.
- Future assignment: The employer can assign the policy to the employee after a fixed period or upon exit.
Frequently Asked Questions (FAQs)
Q1: Can the employee claim tax benefits if the employer pays the premium?
A: No. Only the employer can claim tax benefits under Section 37(1) unless the policy is transferred to the employee.
Q2: Is employer-employee insurance only for large corporations?
A: No. Even small and medium businesses can use employer-employee life insurance policies to attract and retain talent.
Q3: Can the policy be transferred to the employee later?
A: Yes. The policy can be assigned to the employee with written documentation. After that, the employee can claim future benefits.
Q4: What if the employee leaves the company?
A: Depending on the agreement, the employer can continue the policy, surrender it, or assign it to the departing employee.
Q5: Is medical testing compulsory for employees?
A: For high coverage amounts, yes. Most insurers require basic health checkups for underwriting.
Conclusion
The employer-employee life insurance policy is more than just a financial product – it’s a symbol of trust, responsibility, and foresight. While employees gain valuable life coverage and peace of mind, companies benefit from loyalty, tax efficiency, and a stronger employer brand. Whether you’re a growing business or a large corporation, this is one benefit worth offering.