IC 83 - Compressed-1

CHAPTER 1
INTRODUCTION
f Chapter Introduction
Retirement benefit schemes provide financial security and stability during old
age when people usually don't have a regular source of income. Retirement
benefit plans ensure that people live with pride and without compromising on
their standard of living during advancing years. These schemes give an
opportunity to invest and accumulate savings and get lump sum amount as
regular income through annuity plan on retirement. In the recent years the
government too has come up with various retirement and employee benefits
schemes that cater to the financial needs of individuals post retirement.
Employee benefits and benefits in kind (also called fringe benefits, perquisites,
or perks) include various types of non-wage compensation provided
to employees in addition to their normal wages or salaries. The purpose of
employee benefits is to increase the economic security of staff members, and in
doing so, improve worker retention across the organization. As such, it is one
component of reward management.
Group insurance is an insurance that covers a defined group of people, for

example the members of a society or professional association, or the employees
of a particular employer. Group coverage can help reduce the problem
of adverse selection by creating a pool of people eligible to purchase insurance
who belong to the group for reasons other than the wish to buy insurance, which
might be because they are a worse than average risk.
In this chapter we will study about the different retirement benefit schemes
and employee benefit schemes that the government has introduced. We will
also briefly study about private sector schemes available in the market, both
occupational and individual schemes. Towards the end of the chapter we will
study in detail about group insurance schemes, their characteristics and
advantages over the individual insurance schemes.
I Learnina Outcomes
A. Employee Benefit Schemes
B. Retirement Benefit Schemes
C. Pension Schemes - Occupational and Individual Schemes
D. Grouplnsurance
Scanned by CamScanner
CHAPTER 1
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1. Introduction
Prior to independence, when the economy was mainl~ agricultural-based, only a
few Indian employers had organized retirement benef1ts. The other mostly small
and medium sized employers either left it to the employees to look .after
themselves after retirement or on paternalistic grounds followed the pract1ce of
retaining them on the pay roll even in old age and paying them salary at a
reduced level or gave employment to the sons of former employees.
The British companies transacting business in India and some Indian companies
which were progressive minded followed the British system of superannuating
the employees after they reached the specified retirement age and also
introduced pension arrangements to their senior employees. These were
operated as unfunded schemes and benefits were paid out of current revenue.
2. Income Tax Act, 1961
With the introduction of Chapter IXA and Chapter IXB in the Indian Income Tax
Act, 1922, arrangements for funding retirement benefits in India in the form of
Provident Fund and Superannuation Fund started in order to take advantage of
the available income-tax relief.
These ~hapters IXA and IXB were subsequently replaced by Part 'A' and 'B'
respectl_vely of th~ Fo~rth s~hedule of the Income Tax Act, 1961. Some foreign
compames .operatmg m lnd1a also started arranging Group life Insurance and
Group Pens1on Schemes on the British model.
3. EmployHS Provident Fund Schemes, 1952
With the enactment of this legislation th P .

compulsory to all employees and cover, e r~Vldent Fund Scheme became
employees were Rs 500 ed estabhshments where the salaries of
. per month or less This sal l' . .
subsequently which at present is Rs 15 wf. ary 1m1t was ra1sed
2014. · ' 000 th effect from 1st September
The Employees' Provident Fund Sch

contributions to the Government fun erne . e_nabled the employers to pay
Trustees .appointed by the Govemm d :dmmlst~red by t~e Central Board of
mel~ m the Act by which an emploen · Certam e~empt1on provisions were
ProVldent Fund which has to be r yer c?Uld orgamse and administer his own
Schedule of the Income-tax Act, 1961
~0imSed under Part 'A' of the Fourth
RETIREMENT BENEFIT SCHEMES
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4. Employees' Provident Fund and Miscellaneous Provisions Act
In order to provide for certain additional benefits to the families of employees

who die in service the Act was amended and expanded. The renamed
Employees' Provident Fund and Miscellaneous Provisions Act included the
Employees' Family Pension Scheme in 1971 and later on Employees' Deposit-
Linked Insurance Scheme in 1976. Later in 1995, Employees' Family Pension
Scheme was replaced with a more comprehensive pension scheme known as
Employees' Pension Scheme (EPS). For these who are not covered by the Act,
Provident Fund and other retirement benefit schemes still remained voluntary.
The Employees' Provident Fund & MP Act, 1952 is an important piece of Labour
Welfare legislation enacted by the Parliament to provide social security benefits
to the workers. The Act and the Schemes framed there under provides for three
types of benefits -Contributory Provident Fund, Pensionary benefits to the
employees/ family members and the insurance cover to the members of the
Provident Fund.
5. Employees Deposit-Linked Insurance Scheme, 1976
The Central Government with the motive of providing additional Social Security
in the form of life Insurance to the family of the deceased member of the
Provident Fund, introduced the Employees Deposit linked Insurance Scheme
with effect from 1st August, 1976 as provided under Section 6(C) of the
Employees' Provident Fund and MP Act, 1952.
The benefit under the Scheme is so devised that it acts as an incentive to the
members to save more in their Provident Fund Account. As the name of the
Scheme says ~ the benefit is linked to the amount of accumulation in the
Provident Fund Account of the member.
The Scheme applies to the employees of any establishment or class of

establishments to which this Act applies. With effect from 1st September 2014,
the wage ceiling for EDLI contribution has been increased from Rs. 6,500 per
month to Rs. 15,000 per month.
In all cases of EDLI claims where the date of death of the member occurs on or
after 1st September, 2014, the benefits shall be regulated on the basis of the
enhanced wage ceiling limit of Rs. 15,000/ • per month along with the admissible
increase of 20% under newly introduced sub-paragraph (4) of paragraph 22.
In those cases of EDLI claims where the date of death of member has occured
prior to 1st September, 2014 the benefits will be regulated on the basis of the
wage ceiling limit of Rs. 6,500/· per month.
CHAPTER 1
6. Employees' Pension Scheme, 1995

Employees' Pension Scheme is Pension S~heme for survivors, old aged and
disabled persons. The earlier Family Pens10~ Sc~eme , 1971 offered on~y one
type of benefit, namely, survivor's benefit, 1.e. payment of pension to
widow/ widower on death of the member in service. On the other hand, the new
scheme caters for three types of contingencies :
• Survivor Pension: If death occurs during service period.
• Old Age Pension: Pension or Superannuation.
• Permanent Disability: In the event of member suffering Pension

permanent disability while in service.
With effect from the 1st September, 2014, the pensionable salary for all cases
of exit/death on or after 01.09.2014., for calculating pension shall be the
average monthly pay drawn during the contributory period of service in the span
of 60 months preceding the date of death/ exit from the membership of the
Employees' Pension Fund. The pensionable salary shall be calculated on pro-rata
basis separately for the period up to 31.08.2014 up to wage ceiling of Rs.6,500/ ·
per month and for the subsequent period upto the wage ceiling of Rs.15, 000/·
per month. Similarly, the Withdrawal Benefit shall be based on the weighted
wages at different wage ceilings.
The members having date of exit from EPS, 1995 on account of

superannuation/option date for commencement of early pension etc. prior to
01 .09.2014 shall get Pensionary benefits on the basis of the existing pensionable
salary calculations i.e. by taking 12 months average.
Further, with effect from 01.09.2014, wherever employer & employees have
opted to contribute on salary exceeding Rs.6,500/· per month, such employer &
employees will have to exercise a fresh option to contribute on salary exceeding
Rs.15,000/- per month subject to the condition that such member would have
to contribute the Government's share of contribution @ 1. 16% on the salary
exceeding Rs. 15,000/- per month from his / her share of contribution. The fresh
option is to be exercised within a period of 6 months. It is essential to know
with certainty the employees who are currently permitted to contribute to EPS
on higher wages, so that fresh options can be called for. Accordingly, you may
immediately flag all such cases of contribution on salary exceeding Rs.6,500/ .
per month and obtain fresh options in a time bound manner. It may be made
known to the existing optees that if the fresh option is not exercised it shall be
deemed that the employee has not opted in allowing contribution over wage
ce~l~ng ~nd the contributions to Employees Pension Fund made above the wage
cellmg m respect of the member shall be diverted to the Provident Fund
account of the member along with interest as declared under the Employees'
Provident Fund Scheme from time to time.
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1. Public Provident Fund Scheme
Public Provident Fund (PPF) is a scheme of the Central Government, framed

under the PPF Act of 1968. Briefly, the PPF is a government backed , long term
small savings scheme which was initially started by the Government because it
wanted to provide retirement security to self-employed individuals and workers
in the unorganized sector.
It is a disciplined investment avenue as your money is blocked for 15 years. The

PPF also offers loans against the account which can help you during occasions
like a wedding in the family, further studies of your children, etc.
A minimum yearly deposit of Rs. 500 is required to open and maintain a PPF
account , and a maximum deposit of Rs.1 00,000 can be made in a PPF account in
any given financial year. The investments can be made in multiples of Rs. 5,
either as a whole sum, or in installments (not exceeding 12 in a year, though
more than one deposit can be made in a month). The credit to the PPF account
is made on the date of clearance of the cheque, not on the date of its
presentation.
Every subscription should be made in cash or through a crossed cheque or draft

or postal order, in favour of the accounts office, at the place at which that
office is situated. In case of any cheque, draft or postal order should be drawn
at a bank or post office at that place. It is also possible to t ransfer funds online
using net banking in a PPF account opened with SBI also NEFT Transfer from any
bank is possible with SBI PPF accounts.
The government of India decides the rate of interest for PPF account. The
current interest rate effective from 1st April 200 is 8.7% per annum
(compounded annually). Interest is calculated on the lowest balance between
the close of the fifth day and the last day of every month. Till March 2010,
cheques deposited for clearing, up to 5th of the month were eligible for that
month's interest. Since 29 March 2010, only the amounts which are actually
cleared on or before the 5th of the month are eligible for that month's interest.
Nomination facility is available. In the case of joint nominees, it is possible to

allocate the percentage of benefits to each nominee.
Interest earned is fully exempt from tax without any limit. Annual contributions
qualify for tax rebate under Section SOC of income tax. Contributions to PPF
accounts of the spouse and children are also eligible for tax deduction. Balance
in PPF account is not subject to attachment under any order or decree of court.
But, Income Tax authorities can attach the account for recovering tax dues. The
highest amount that can be deposited is Rs. 100,000. Tax bracket for PPF is EEE
(i.e. Exempt, Exempt, Exempt). So contribution is exempted under SOC , Interest
earned is tax exempted and withdrawal is also tax exempted
One can withdraw the investment made in 1st yea~ only in 6t~ y~a~. ~owever,
loan against investment is available from 3rd financial year. If llqU1d1ty 1s not an
issue one should invest as much as he/ she can in this scheme before looking for
.
other' fixed income investment opt1ons.
Second problem is debasement of currency and gover.nme~ts inflation policy as

PPF unlike physical assets will not cover a person for mflat1on, ~tally in the
current economic scenario in 2013. Inflation has been substantially above the
PPF interest rate for well over 5 years; as PPF Interest rate of 8.8 or 8.7% as at
April 2013 is far below the double digit CPI inflation rate of 11% and way below
the real inflation rate.
8. The Payment of Gratuity Act, 1972
Gratuity was a gratuitous payment usually in operation when there was no

pension arrangement but was given as a terminal benefit supplemental to the
Provident Fund until the payment of Gratuity Act, 19n was passed. Then it
became compulsory for all employees whose monthly salary was Rs 1000 or less.
The Wage Ceiling was raised over time and finally removed altogether for
Coverage under "The Payment of Gratuity Act, 19n" with effect from 1994.
The Gratuity limit as per Section 4(3) has been raised from 3.5 lakhs to 10 lakhs
with effect from 24th May, 2010. According to this amendment, the maximum
gratuity exemption as per IT Act also increases toRs 1,000,000.
• For every completed year of service or part thereof in excess of six

months, the employer shall pay gratuity to an employee at the rate of
fifteen days' wages based on the rate of wages last drawn by the
employee concerned.
• The Gratuity calculation is done as per the last average remuneration
drawn and time in years served by an employee.
• The amount of gratuity payable to an employee shall not exceed Rs.
1,000,000 (increased from Rs. 350,000).
• In order to compute the gratuity payable in case of employees employed
in seasonal establishments, daily wages, or piece rated employ-
ees. Computation will be as per the provision of the Act.
It can be formulated as follows:
Monthly salary • 15 • No. of year of services I 26
Maximum Limit: The Gratuity limit as per Section 4(3) has been raised from 3.5
Lakhs to 10 lakhs. According to this amendment, the maximum gratuity
exemptton as per IT Act also increases toRs. 1,000,000.
Part 'C' of the Fourth Schedule of the Income-tax Act, 1961 provides for setting
up of approved Gratuity Funds with tax benefits simtlar to Provident Fund and
Superannuation Fund.
6 IC·I l GROUP INSURANCE AND RETIRfMFioiT AFNF FF I T"
RETIREMENT BENEFIT SCHEMES_ _ _ _ _ _ __ _ _ __ CHAPTER 1
9. Superannuation
The need for regular income in old age post superannuation sprouted in India as
the result of a combination of important economic, demographic, social and
political developments. Continued industrialisation and the expansion of small
firms into larger ones encouraged some employers to ponder upon to seek ways
to allow to retire superannuated workers in the interest of efficiency.
Earlier people used to work till almost the fag end of their life time. They were
working as lifelong servants of the employers who regarded them as members of
their family. This intimate personal relationship between the employers and
employees could not continue once employers started employing hundreds and
thousands of employees due to large scale industrialisation.
History of employee benefits suggests that many late nineteenth century urban
workers could not afford to retire. Elderly members generally resided with and
were supported by the younger generations. In many cases, they continued
performing household or farm tasks, thus supporting the younger people to
some extent. But increased urbanisation, changes in housing conditions, greater
geographical mobility and many other economic and social developments
weakened the traditional approach to old age care and support through joint
family system.
The inability or unwillingness of workers to save enough for retirement and

changing concept of filial responsibility created widespread financial insecurity
among older Indians. The interests of employers in providing an orderly
mechanism to retire superannuated workers and also the interests of larger
society in social welfare of older citizens gave rise to institutional provision of
retirement benefits. Indian society has thus looked increasingly to employers
and government for old age support. Some of the employers had paternal
approach to employees' benefits post retirement. However it was limited to a
few employers as superannuation benefits are optional in India.
Social security benefits
Social Security Benefits in India are need-based i.e. the component of social
assistance is more important in the publicly-managed schemes.
In the Indian ~on~ext, Social Security is a comprehensive approach designed to

prevent depnvat1on, assure the individual of a basic minimum income for
himself and his dependents and to protect the individual from any
uncertainties.
RETIREMENT BENEFIT SCHEMES -
The State bears the primary responsibility for developing approp~ia te syst~m f~r
·· r and assistance to its workforce . Socta 1 5ecunty 1s
provldt~g l pr~tecedJonas an integral part of the development process. It helps to
mcreasmg y v~ ew l b l' · d
create a more positive attitude to the challenge of g o a 1sat10n an the
consequent structural and technological changes.
A Social Security Division has been set up under t~e Ministry of ~abour and
Employment. The division deals with framing of soc.tal secunt~ pohcy ~or the
workers, administration of all the legislations relatmg to soctal secunty and
implementation of the various social security schemes.
The principal social security laws enacted for organized sector in India are the
following:
a) The Employees' State Insurance Act, 1948 (ESI Act)
The Employees' State Insurance Act, 1948 (ESI Act) which covers factories
and establishments with 10 or more employees and provides for
comprehensive medical care to the employees and their families as well as
cash benefits during sickness and maternity, and monthly payments in case
of death or disablement.
b) The Employees' Provident Fund and Miscellaneous Provisions Act,

1952 (EPF and MP Act)
The Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (EPF
and MP Act) which applies to specific scheduled factories and establishments
employing 20 or more employees and ensures terminal benefits to provident
fund, superannuation pension, and family pension in case of ~eath during
service. Separate laws exist for similar benefits for the workers in the coal
mines and tea plantations.
c) The Workmen's Compensation Act, 1923 (WC Act)
The Workmen's Compensation Act, 1923 (WC Act), which requires payment
of compensation to the workman or his family in cases of employment
related inju.ries resulting in death or disability.
d) The Maternity Benefit Act, 1961 (M.B. Act)
The Maternity Benefit Act, 1961 (M.B. Act) , which provides for 12 weeks
wages during maternity as well as paid leave in certain other related
contingencies.
EMPLOYEES BENEFIT SCHEMES CHAPTER 1
e) The Payment of Gratuity Act, 1972 (P.G. Act)
The Payment of Gratuity Act, 1972 (P.G. Act), which provides 15 days wages
for each year of service to employees who have worked for five years or
more in establishments having a minimum of 10 workers.
We will discuss various Social Security Schemes for organized and

unorganized sector in detail in the subsequent chapters of this module.
ITest Yourself 1
Which is not a mandatory benefit for eligible class of employees?
I Gratuity
II Provident Fund
Ill Superannuation
IV. None of the above
I B. Employees Benefit Schemes
1. Object of Employee Benefit Schemes
The object of employee benefit schemes is to make adequate financial provision

for employees in two contingencies, namely,
a) Premature death or disability while in service and

b) Compulsory retirement from gainful employment
The hazard of premature death of the breadwinner will cause sudden stoppage
of income to the family. On the other hand, living too long in old age after
retirement is also equally dreadful. Adequate financial provision to meet these
contingencies is, therefore, an imperative need. These hazards are insurable as
they conform to the requirements of insurability.
The object of insurance is to transfer highly uncertain risk of loss arising for
individuals to an insurance company. The insurer by pooling numerous individual
risks, is able to predict the extent of likely claims for the entire insured
population and charge a suitable premium therefore from each individual.
Progresslve employers recognise that they have a responsibility towards their

employees far beyond the payment of salaries or wages in return for services
availed. They have appreciated that well balanced service benefits give the
employees a sense of security which is very essential for their morale and which
will lead to better productivity. When the employees are free from anxiety
about the financial provision on premature death and superannuation from
service, they are likely to develop a sense of belonging which will promote the
n
CHAPTER 1 _ _ _ EMPLOYEE~B~!_fE~I! SCHEM£s
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p
interest of the employer in many ways. The relation ~e~ween the management
and the workers will be then one of harmony and cord1allty.
The goodwill flowing from mutual satisfaction enables the industry to avoid the L
loss of man-hours due to strikes, lay-offs and lock-outs. Further, an employer
may be able to attract and retain talented employees, reduce the incidence of
turnover and improve the degree of efficiency. A number of employee benefits
have, therefore, emerged over the years, some of which are ma~e as a result of
discussion between the employers and the employee umons and some
voluntarily introduced by the employers on their own
2. Types of employee benefits of a company
The employee benefits of a company generally include: [

a) A remunerative wage structure which motivates the employees to
contribute their maximum worth to the enterprise;
b) Bonus to the employees either on festive occasions or as a reward for

their contribution in the high performance of the firm.
i. Salary above Rs. 2,500 is not considered for calculation of Bonus.

[Section 12 of Payment of Bonus Act, 1965].
ii. Employee Drawing Salary I Wage exceeding Rs. 3,500 is not entitled
to any Bonus under "Payment of Bonus Act, 1965".
c) Social security benefits for employee welfare in the form of provident

fund, gratuity, medical facilities, compensation and insurance policies;
d) Different ~pes and number of leave so that the employees may take
care of the1r personal , family and social needs as well as revitalise
themselves so that they contribute their best effort to the organisation;
e) Emp~oyees. who wish to voluntarily retire from an organisation are

proVlded With several benefits under the voluntary retirement scheme.
f) Working hours, holidays etc.
3. Service Benefits through Insurance Contracts
The benefits to be provided to the employees are · bl d

· L be f d . msura e an can
convement Y un ed through msurance contracts 0 l l'f ·
provide capital benefits on premature death. • n Y 1 e msurance can
The insurance companies all over the world have spec; l"sed · -
is known as Group schemes business of 'd a1 m transactmg what
cons1 erable maanitud · · the
employers' liability towards employee benefits. D e msunng
10
IC·8l GROUP INSUA.4Nrl' A"'n DrTo"r"~·- ~-··--~-
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PENSION SCHEMES - OCCUPATIONAL AHD INDIVIDUAL SCHEMES CHAPTER 1
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ITest Yourself 2
Which of the following is I are an example of employee benefits that is I are
generally offered to employees by their company?
I. Remunerative wage structure

II. Bonus to the employees
Ill. Social security benefits
IV. All of the above
IC. Pension Schemes - Occupational and lndtvtdual Schemes
1. Occupational Pensions
Occupational pension schemes are arrangements established by employers to

provide pension and related benefits for their employees.
a) Defined Benefit Schemes
A defined benefit occupational pension scheme is often based on final

salary. In such an arrangement, the employee is typically promised a
pension of a fixed proportion of their salary in the period leading up to
retirement. The proportion would depend on the number of years of
service with the employer.
b) Defined Contribution Schemes
Over recent years, many employers have closed their defined benefit
schemes to new members and established defined contribution or money
purchase arrangements instead.
In this arrangement, the employer (and sometimes also the employee)

makes regular payments (typically a percentage of salary) into a pension
fund, and the fund is used to buy a pension when the employee retires.
So the amount of pension depends on a number of factors including the
accumulated amount of the fund, interest rates and projected mortality
rates at the time the individual retires.
2. Individual or personal pensions
It is also possible for an individual to make contributions under an arrangement

they themselves make with a provider (such as either with an insurance
company or under NPS). They are essentially defined contribution schemes and
I
are optional in nature. They can be set up by individuals themselves or through
their employer. I
I
CH APTER 1 PEN SION SCHEMES · OCCUPATIONAL AND INDIVIDUAL SCHEMES
a) Individual pensions
Individuals can contribute to individual pension plans of insurers which are

approved by Insurance Regulatory and Development Authority of India
(IRDAI) and/or to the National Pension System (NPS) which is approved by
Pension Fund Regulatory and Development Authority (PFRDA).
b) Group personal pensions
Group personal pensions are another pension arrangement that are personal
pensions, but are linked to an employer. A group personal pension plan
(GPPP) can be established by an employer as a way of providing all or some
of its employees with access to a pension plan of either of a life insurer or
NPS
3. National pension System (NPS)
National Pension System (NPS) is an initiative of Pension Fund Regulatory and

Development Authority (PFRDA), the apex body established by Government of
India to regulate and develop the pension sector in India. The National Pension
System (NPS) was launched on 1st January, 2004 witlh the objective of providing
retirement income to all the citizens. NPS aims to institute pension reforms and
to inculcate the habit of saving for retirement amongst the citizens.
Initially, NPS was introduced for the new government recruits (except armed
forces) . With effect from 1st May, 2009, NPS has been extended for all citizens
of the country including the unorganised sector workers on voluntary basis.
NPS - Swavalamban
To extend the coverage of NPS to the weaker and economically disadvantaged

sections of the society with their limited investment potential, PFRDA has
launched NPS - Swavalamban which specifically targets the marginal investors
and promotes small savings during their productive life. It aims at building up a
corpus sufficient enough to buy an annuity for their old age. It is applicable to
all citizens in the unorganised sector who join the New Pension System
administered by the PFRDA.
The scheme was announced by the Finance Minister in the Budget of the year
2010-11. Under the scheme, Government contributes Rs. 1000 per year to each
NPS account opened in the year 2010-11 and for the next three years, that is,
2011-12, 2012-13 and 2013-14. The benefit would be available only to persons
who join the NPS with a minimum contribution of Rs. 1,000 and maximum
contribution of Rs. 12,000 per annum.
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PENSION SCHEMES- OCCUPATIONAL AND INDIVIDUAL SCHEMES CHAPTER 1
The subscriber of NPS • Swavalamban account should not be covered under

social security scheme like Employees' Provident Fund and Miscellaneous
Provisions Act, 1952, The Coal Mines Provident Fund and Miscellaneous
Provisions Act, 1948, The Seamen's Provident Fund Act, 1966, The Assam Tea
Plantations Provident Fund and Pension Fund Scheme Act, 1955 and The Jammu
and Kashmir Employees' Provident Fund Act, 1961 .
a) Coverage and eligibility of NPS
NPS is made available to all citizens of India on voluntary basis and is

mandatory for employees of cent ral government (except armed forces)
appointed on or after 1 January 2004. All Indian citizens between the age of
18 and 60 can join the NPS.
i. Tier-1 account
Tier-1 is mandatory for all Government servants joining Government service

on or after 1 January 2004.
In Tier-1, Government servants will have to make a contribution of 10% of

their Basic Pay, DP and DA which will be deducted from their salary bill
every month. The Government will make an equal matching contribution.
However, there will be no contribution from the Government in respect of
individuals who are not Government employees. The contributions and
returns thereon would be deposited in a non-withdrawable pension account.
ii. Tier-11 account
In addition to the above pension account, each individual can have a

voluntary Tier-11 withdrawable account at his option. Government will make
no contribution into this account. These assets would be managed in the
same manner as the pension. The accumulations in this account can be
withdrawn anytime without assigning any reason.
b) Contribution guidelines for Individuals
To contribute in Tier I and Tier II account, a subscriber is required to make

his I her first contribution at the time of applying for registration (minimum
contribution Rs 500 for Tier I and Rs 1000 for Tier II) at any Point of
Presence Service Providers (POP-SP) with NCIS (NPS Contribution Instruction
Slip) form.
i. The NPS subscriber is required to make contributions subject to the

following conditions:
../ M~n~mum amount at the ti me of Account opening - Rs. 500

../ Mm1mum amount per contribution - Rs. 500
../ M~n!mum contribution per year - Rs. 6,000
../ Mm1mum number of contributions in a year - One
ii. A subscriber can decide on the frequency of the contributions across the
year as per his/ her convenience. No maximum limit has been mandated.
iii. For Tier II, minimum contribution requirements are:
.I Minimum contribution at the time of account opening - Rs. 1000

.I Minimum amount per contribution - Rs. 250
.I Minimum number of contributions in a year - one
.I Maintain minimum balance of Rs. 2000 at the end of each financial year
iv. If the subscriber is unable to contribute the minimum annual

contribution, a default penalty of Rs. 100 per year of default would be
levied and the account would become dormant. In order to re-activate
the account, subscriber will have to pay the minimum contributions,
along with penalty due. A dormant account will be closed when the
account value falls.
ITest Yourself 3
- - - - -- -- is an arrangement established by employers to provide
pension and related benefits for their employees.
I. Occupational pension
II. Gratuity
Ill. Bonus
IV. Employee stock options
ID. Group Insurance a Other Beneflt Schemes

1. Introduction
Group insurance involves providing insurance to a group of individuals who share

some common attribute, through a single policy contract. Group insurance
policies offer life insurance protection to all types of groups such as:
a) Employer-employee groups
b) Professionals
c) Creditors-Debtors
d) Co-operatives and Associations
e) Weak.e r sections of society
Under Social Security Group Insurance Scheme the Insurance coverage is

provided people from unorganized sector, socially and economically weaker
section of the society etc. The rates of premium are generally subsidized.
GROUP INSURANCE & OTHER BENEF~
IT_
S_
CH
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M_E_S_ _ _ _ _ _ _ _ _ __
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2. Individual Insurance
It is the contract of Insurance wherein the Insurance Risk appraisal is done on

individual lives separately considering each life as separate unit.
Explanation: Under one contract coverage may be extended to multiple lives

such as a joint life insurance policy. In a Health Insurance contract also whole of
the family may be insured. There will be a principal insured person who enters
in to the contract on his behalf and on behalf of other insured members of the
same contract. The Insurance Risk appraisal is done on each of the lives covered
separately and consideration will also be different. However it is an individual
Insurance only.
Explanation: Under Key Man Insurance the policy holder may be an Institution
covering Key Person or persons.
Explanation: In majority of cases, under the individual Insurance contract, the

Policy holder /Proposer as well as the Insured will be the same individual. I.e.
the proposer will be insuring on his own life.
3. Grouplnsurance
It is the contract of insurance wherein the Insurance Risk appraisal is done

taking a group of lives as one single Unit.
Invariably under Group Insurance Contract the Policy holder/ Proposer, the
Insured and the Insurer are distinct and separate.
a) Characteristics of Group Insurance
There will be a nodal agency to represent the group; single administrative

machinery maintains details of insured members. Example: An Employer, an
Association, an Organization,
The Nodal Agency will maintain detail.s of the insured members, nomination,
application for insurance, Declaration about health, if any etc.
Group should not have formed only for the purpose of taking insurance.
Rather insurance should only be incidental.
lnd~vid~al members_of the group do not have any say on the insurance cover
wh1ch 1s rater proV1ded as per some formula say on the basis of designation
or as a multiple of salary or some other basis..
The Gr~p ~s a whole is taken as a Unit for underwriting purpose. The group
dynam1cs W1l_l play a pivotal role. Example: The Size of the Group, The Type
of Cover des1red, The Occupation of the Group, The geological spread of the
members, etc., are the factors which contribute the risk appraisal rather
IC·83 GROUP INSURANCE AND R£TIRFMFNT RFNHI'In
than the health , habits, family history etc. of the individual constituent
members taken separately.
The insurance cover is on the basis of some simple condition or conditions of

insurability.
Example: The member should be actively on work on the date of

commencement of risk; a large proportion of the group should join for
coverage on the date of commencement; member opting for insurance cover
shall provide a simple declaration about his health etc.
One s;ngle Policy -•Master Policy' wHl be issued covering all the insured
lives.
The premium is low due to a number of factors explained as under.
Explanation: The administration cost is minimal as the transaction is done

taking group as the unit such as premium is paid for all the members
together
It is the nodal agent, who maintains the Membership Register, Nomination

details etc. of the insured members.
Free Cover Limit - Each member of the group will be insured up to certain
amount without insisting on any health requirement. The coverage beyond
this threshold level wHl be on the basis of individual assessment I
underwriting.
Experience Rating Analysis - Insurer may share his experience with the
group policy holder.
Explanation: The favourable claims experience by the Insurer will result in

reduction of cost of insurance to the Master Policy holder.
b) Other Factors of Group Insurance:
Group should be Homogeneous: There should be a common attribute

amongst members of group.
New Lives - There should be steady flow of new lives. A closed group i.e.
where the chance of fresh infusion of lives is minimal is detrimental and
leads to rise in premium rate due to increase in average age of the group.
Example: Insuring members of a small building society wherein On and Off

movements of members is negligible is not a good proposal to consider for
group life insurance. However, such a group may be covered for health
insurance where members of families are covered.
CHAPTER 1
Coverage - Generally all the members of the group are to be covered.

However, where the cover is optional, a large section of the group should
opt for insurance. Otherwise the condition may act as Selection against
Insurer.
Size - There should be a minimum threshold level of group size for contract
to materialize. Higher the membership base, lower the risk of selection
against the insurer.
c) Classification of Group Insurance Schemes:
The group insurance contracts are generally classified under following

different heads.
i . Contributory and Non Contributory Schemes
ii. Short Term contracts and Long Terms Contracts.

iii. Pure Term Assurance Contracts and Other Contracts
Non Contributory Schemes - are one wherein the proposer, the nodal
agency himself pays the entire considerations. In this arrangement there
will be less chances of selection against insurer as the entire section of
eligible members come to the fold . Generally employer-employee group
insurance schemes are non-contributory.
Contributory Scheme - are one wherein insured member also share the
cost. These schemes are generally optional for members and therefore a
certain minimum proportion of members should contribute in order to
reduce the risk of selection against the insurer.
Short Term contracts are with short duration such as a year. Popularly
known as OYRGTA - One Year Renewable Group Term Assurance or Group
Mediclaim Policy
Generally Group long term contracts are to insure the loanee members
against outstanding loan. Such contract are generally granted on Single
Premium basis.
Generally the Group contracts are term assurance contracts (popularly

known as GTL scheme) and do not carry any surrender value and concept of
maturity. However in some scheme an element of savings/ thrift is imbibed
to provide maturity, Surrender etc. benefits.
4. Seaments of Group Schemes Market
The market for Group Schemes can be divided into various segments, based on
the nature of benefits or size of group but the most meaningful division is in
terms of the relationship of the persons covered. These segments can be
classified into two broad categories.
a) Individual Employers
Individual ,employers providing benefits to their employees form the primary

segment of the Group Schemes market. This area is by far the largest in
terms of the annual premium, number of policies and the number of
individuals covered. SO far as life insurance and health insurance covers are
concerned Employer-Employee groups are ideal groups -fulfilling all the
characteristics and features of group insurance schemes. This is why they
are very popular.
For convenience, the employers use the Group Scheme medium to fund on a
scientific basis their liability towards employee benefits, viz. pension,
gratuity and life assurance.
Pension and gratuity benefits can be funded by employers by setting up

irrevocable trust funds which are approved by the Commissioner of Income-
tax under Part 'B' and Part 'C' respectively of the Fourth Schedule of the
Income-tax Act, 1961.
b) Other Segments
The other segments of Group Schemes market are

i. Professional Bodies or Associations
ii. Labour unions,
iii. Associations of persons,
iv. Creditor-debtor groups and
v. Co-operative societies.
vi. Weaker Sections
While Group ~hemes do provide an excellent media for fundin the

~mployee benef1ts to t~e best advantage of all concerned there is a,Hother
1m~rtant. and demandmg role for Group Life assurance and that is to
provide msurance protection to the self employ d · h
· d
unorgamse sector and people belonging to the
• e persons m t e
· ll k
sections of the society. econom1ca Y wea er
In our country, a great majority of the workin · ·

class and if group insurance tech . . g population belongs to this
mque IS not extended t th
people, there is no other way by which the . ~ cover ese
insurance can reach them. benefits of hfe and health
GROUP INSURANCE & OTHER BENEFIT SCHEMES CHAPTER 1
The Government in our country has not introduced any mandatory social
security measures for these people. In this context, group term insurance,
which is a low cost insurance plan, is ideally suited to provide some measure
of insurance protection. No doubt, it is essential that different groups in the
shape of association and co-operatives comprising these individuals will have
to be formed on the basis of profession or occupation and the groups can
then be considered as viable units for granting cover.
Employer- Employees groups are close net and well organized groups. The
bondage between the nodal agent, the employer and beneficiary, the
employees is strong and long term in nature. Hence the risk level will be
comparatively low. Consequentially the underwriting approach is liberal and
premium rates are highly competitive. Various legislations also put the
penetration level very deep.
Professionals Groups segment provides a standard group leading to higher

cover. Example: Group of Advocates; Group of Chartered Accountants;
Group of Engineers; Group of Doctors; etc.
Creditor-debtors Groups - normally lender will act as nodal agency for the
cover. The segment touched by the lender and purpose of loan will be the
principal factors deciding on insurance offer. The bondage between the
nodal agent and beneficiary is minimal in general and is business in
approach. Hence underwriting approach is little cautious.
Other groups segments always provide the platform for deep penetration.
The risk profile will generally be high. This issue is addressed by extending
low level coverage coupled with restrictive clauses.
Social Security Segment opens the doors of reaching the unreached. Risk
profile will generally be high. The wide membership base counters the
same. Normally offered a low level of cover to start with restrictive
conditions.
5. Development of Employee Benefit Schemes
The employee benefit schemes have developed out of the employer-employee

relationship and obviously, the attitudes and actions of both employers and
employees have influenced their growth. Legislation on the subject has atso a
direct impact on their accelerated growth. However, the influence exerted by
the trade unions is by far the most effective and decisive factor for establishing
the employees' rights and for the evolution of satisfactory wage structure
comprising cash payments to meet the current and continuing needs and other
long term service benefits to meet the needs arising on retirement, death and
cessations of service. The alternative tax benefits provided by the government
to both the employer and employee have atso contributed for the development
of these schemes.
CHAPTER 1 GRO~P INSURANCE & OTHER BENEFIT SCHEMES -
(,1
The employers too have realized that group schemes provided a convenient
medium for providing life insurance benefit, gratuity and retirement pensions
which will relieve them of the problems of administration of employee benefit
schemes and investment of funds pertaining to them .
The Government has been laying emphasis on industrialisation and large funds
are made available for the establishment of new industries in the public sector
as well. For the healthy growth of these industries, maximum employee
productivity has to be ensured and this is directly related to the co-operation of
the workers which will be possible only if they are kept contended. [
In order to protect the interest of the workers, the Government has from time
to time brought forth legislation to improve their conditions of employment and
service benefits. These usually come in the shape of social security, statutory
compulsion and tax concessions.
6. The Three Schemes
Different types of insurance policies are designed by judiciously combining

benefits payable on death of an individual and benefits payable on survival to a
stipulated future date. Group Scheme contracts are no ,exception to this rule.
In Group Schemes there is large scope for flexibility and while designing a
contract, the specific needs of an employer and his employees can be
incorporated. A scheme can be 'tailor-made' or 'custom built' and different
kinds and levels of benefits can be built into it.
Look at the structure of various insurance schemes designed to provide service

benefits.
a) Group Ltfe Insurance Schemes
At one end a Group Life Insurance Scheme under which life insurance
protection is given during the service period of the employees by means of
One Year Renewable Group Term Assurance Plan. This is pure life insurance
~nd th~ benefit is payable only in the event of death of the employee while
m semce. It has no cash value, no saving element and provides no maturity
benefit.
b) Group Superannuation Schemes
Group Supera~nuati~ Sche~ . provide retirement pensions by means of

~efe~ed and tmmedt~te annutttes. Superannuation schemes may provide
ltfe •.nsurance protectton though the main objective is to provide old age
penstons t~ ~mployees after retirement from service. Between these two
extremes, tt ts possible to devise a variety of schemes.
20
GROUP INSURANCE & OTHER BENEFIT SCHEMES CHAPTt:R 1
c) Group Gratuity Schemes
A Group Gratuity Scheme is a typical example of a combination of term

assurance and pure endowment to ensure payment of certain benefit both
on death and on retirement. Any suitable plan can be selected looking to
the needs of individual circumstances. But, what is important is that the
cost factor should be kept in mind while selection a particular plan.
ITest Yourself 4
The premium rates of a Group Scheme are adjusted periodically on the basis of
experience. This feature is known as _ _ _ _ _ __ _
I. Incidental pricing
II. Master cover limit
Ill. Free Cover limit
IV. Experience Rating
CHAPTER 1 __ __ su~~Y ,_.
Lls~u=
m=
m=
a~~---------------------------------J
a) Retirement schemes provide financial security and stability during old age
when people don't have a regular source of income. Retirement plan ensures
that people live with pride and without compromising on their standard of
living during advancing years.
b) The object of employee benefit schemes is to make adequate financial

provision to employees in two contingencies, namely,
i. Premature death while in service and

ii. Compulsory retirement from gainful employment.
c) The employee benefits of a firm / company generally include:
i. A remunerative wage structure which motivates the employees to

contribute their maximum worth to the enterprise.
ii. Bonus to the employees either on festive occasions or as a reward for
their contribution in the high performance of the firm
iii. Social security benefits for employee welfare in the form of provident
fund, gratuity, medical facilities, compensation and insurance policies
iv. Different types and number of leave are allowed so that the employees
may revitalise themselves and take care of various other obligations.
v. Employees who wish to voluntarily retire from an organisation are
provided with several benefits under the voluntary retirement schemes
d) The benefits to be provided to the employees are insurable and can

conveniently be funded through insurance contracts. Only life insurance can
provide capital benefits on premature death.
e) With the introduction of Chapter IXA and Chapter IXB in the Indian Income-
tax Act, 1922, arrangements for funding retirement benefits in India in the
form of Provident Fund and Superannuation Fund started in order to take
advantage of the available income-tax relief.
f) Even after making various statutory provisions which enabled the employers
to avail of the income-tax concessions, all retirement benefits remained
voluntary until the passing of the Employees' Provident Fund Act, 1952.
g) The ~mpl~yees' Provident Fund Scheme 1952 enables the employers to pay
contnbut1ons to the Government fund administered by the Central Board of
Trustees appointed by the Government.
h) Employees Deposit Unked Insurance Scheme was introduced with effect

from 1st August, 1976 _by th~ Government. It acts as an incentive to the
members to save more m the1r Provident Fund Account. As the name of the
Sc~ says, the benefit is linked to the amount of accumulation in the
ProVldent Fund Account of the member.
....
SUMMARY
CHAPTER 1
i) ~ need for regular income in old age post superannuation sprouted in

lnd~a as the r~~ult of a combination of important economic, demographic
social and poht1cal developments. '
j) In the Indian co~te~t, Social Security is a comprehensive approach designed

to prevent depnvat1on, assure the individual of a basic minimum income for
himself and his dependents and to protect the individual from any
uncertainties.
k) A Social Security Division ha.s been set up under the Ministry of Labour and
Employment. The division deals with framing of social security policy for the
workers, administration of all the legislations relating to social security and
implementation of the various social security schemes.
l) There are various Private Pension Schemes - Occupational and Individual

Scheme available in market.
i. Occupational pension schemes are arrangements established by

employers to provide pension and related benefits for their employees.
ii. A defined benefit occupational pension scheme is often based on final
salary.
iii. In defined contribution arrangement, the employer (and sometimes also
the employee) makes regular payments (typically a percentage of salary)
into a pension fund , and the fund is used to buy a pension when the
employee retires.
iv. It is also possible for an individual to make contributions under an
arrangement they themselves make with a provider. These schemes are
termed as Individual or personal pension schemes.
m) National Pension System (NPS) is an initiative of Pension Fund Regulatory

and Development Authority (PFROA), the apex body established by
Government of India to regulate and develop the pension sector in India.
i. Tier-1 NPS account is mandatory for all Government servants joining

Government service on or after 1 January 2004. Others can contribute
for it on voluntary basis.
ii. In addition to the Tier I pension account, each individual can have a
voluntary Tier-11 withdrawable account at his option.
n) To extend the coverage of NPS to the weaker and economically

disadvantaged sections of the society with their limited investment
potential, PFRDA has launched NPS- Swavalamb~n whic~ specif~cally targ~ts
the marginal investors and promotes small savmgs dunng their productive
life.
o) Group insurance involves providing insurance to a group of individuals who

share some common attribute, through a single policy contract.
CHAPTER 1
p) Group insurance policies offer life insurance protection to all types of groups
such as:
i. Employer-employee groups
ii. Professionals
iii. Co-operatives & Associations
iv. Creditors-Debtors
v. Weaker sections of society,
q) Group insurance plans may be of two types: Contributory or Non-

contributory.
r) A Master Policy is issued incorporating the contract between the insurance

company on the one hand and a legal entity like Employer, Trustees,
Association etc. on the other hand defining the group of lives to be covered,
benefits, contributions and terms and conditions on which the contract is
entered into.
CHAPTER 2
PRODUCT GUIDELINES
IChapter Introduction
The insurance industry in India is regulated and developed by an autonomous
apex statutory body named as Insurance Regulatory and Development
Authority of India (IRDAI).
In this chapter, we will explain the provisions for group life insurance and
pension products in non-linked and linked regulations issued by IRDA of India.
For additional information (definitions, limits etc .) on regulations refer
annexure at the end of this chapter.
Regulations define the requirements of an insurer, provide consumer protection

through the supervision of insurers to safeguard their solvency and thus shield
the customer from buying insurance from an unsuitable company. The Indian
insurance industry has a huge potential and the framework of insurance
regulation must enable the industry to tap this vast potential. The regulatory
framework in relation to insurance is desired to take care of three major
concerns, viz. (a) Protection of interests of consumers. (b) Ensure the financial
soundness of the insurance industry. (c) Pave the way to help a healthy growth
of the insurance market, where both the government and private parties play
simultaneously.
The following presents only gist of few important clauses from the Regulations.
Students are advised to study the Regulation in detail for exhaustive exposure.
I Learning Outcomes
A. IRDA of India (Non-linked Insurance Products) Regulations, 1013
B. IRDA of India (Linked Insurance Products) Regulations, 1013
C. Group Circular
CHAPTER 2
I A. IRDA of India (Non-linked Insurance Products) Regulations, 2013 ]
Group and pension products can be offered under Participating (par products)
and Non-participating products (non-par products).
As per regulations stated above, these have following features:
1. Par products (4)
Par products shalt be as defined in IRDA (Actuarial Report and Abstract)

Regulations, 2000 and can be offered only under non -linked platform. Under the
par products, the bonus accruals during the term shalt be as follows:
a) Regular bonus shalt declared only on an annual basis;
b) Interim bonus shalt be declared at the annual valuation period which

shall become payable during the inter-valuation period.
c) Terminal bonus, if any, declared shalt become payable on the specified

events agreed in the policy or at the end of the term of the policy.
2. Non-par products (5)
Non-par products may be offered either under a linked platform or a non-linked

platform , and are those products which contain the following features:
a) Non-Linked platform: Individual and Group Savings Variable Insurance

Products:
i. Benefits assured to be payable on the occurrence of a specified event

which are explicitly stated at the outset and not linked to any index or
benchmark;
ii. Additional benefits, if any, accrued at regular intervals during the policy
term, which are explicitly stated at the outset and not linked to any
index or benchmark;
iii. Subject to Regulation 12 , for additional benefits accrued during the

term under non-par products:
./ Benefit accrual shall only be either at the begi nning of every quarter
or half-year or year as may be stated at the outset, where year shall
mean the financial year;
./ Such benefits to be accrued at the specified frequencies and shall

not be linked to any index or benchmark and shall be explicitly
stated at the outset.
IRDA OF INDIA (NON-LINKED INSURANCE PRODUCTS) REGULATIONS, 2013
CHAPTER 2
iv. Whe~e the benefits under the products depend on regular interest rate
credtts , all such products shalt fall under variable i nsurance products.
b) Non-Linked platform: Fund based Groups:
i. The benefits or interest rates, in respect of fund based group insurance

products:
./ Shalt not be linked to any index or benchmark; and

./ Are explicitly stated in advance at the inception of the policy; and
ii. Additional benefits or additional interest credits, if any, may be accrued

either at the beginning of every quarter or half-year or year as may be
explicitly defined or stated at the outset with no discretion to the
insurer, where year shall mean the financial year,
iii. Where the benefits under the fund based group products depend on
regular i nterest rate credits, all such products shall fall under variable
insurance products.
c) Linked platform
i. Unit linked insurance products which comply with the definition of

"Linked business" in accordance with IRDA (Registration of Indian
Insurance companies) Regulations, 2000 and IRDA (Asset Liability
Solvency Margin) Regulations 2000, Schedule 11 -A, Section 1(b).
ii. Variable linked i nsurance products which comply with the definition of
"Linked business" in accordance with IRDA (Registration of Indian
Insurance companies) Regulations, 2000;
Policy Term, Premium Paying Term & Commission
3. Minimum Policy Term (19)
i. For group term i nsurance products with other than single premium
payment products, the policy term shall not be tess than 5 years
ii. Except for one year renewable group products, all single premium group
term insurance products the policy term shall not be tess than 2 years
4. Premium Payment Term (20)
a) Except for single premium payment products, the premium paying term
for all long term group products shall not be less than 5 years.
CHAPTER 2 IRDA OF INDIA (NON-LINKED INSURANCE PROD_UCTS) REGULATIONS, 2013
5. Commissions or remuneration in any form (21)
Commission or remuneration in any form for the procurement of all

individual policies and group term insurance in respect of all the Distribution
Channels ex·c ept the Direct Marketing shall not exceed the following:
Commission on Pension Products
a) For single premium group term insurance with long term, the maximum
commission or remuneration in any form shall be 2 percent of premium
with a ceiling of Rs.200,000/· per scheme
b) For one year renewable group term insurance and One year Group Health
Insurance, the maximum commission or remuneration in any form shall
be 2 percent of premium paid during the first year and 2 per cent of
premium paid during the subsequent renewals with a ceiling of
Rs. 50000/·per scheme in each year
c) For the purpose of (b) and (c), insurer and intermediaries shall ensure
that the policies shall not be split to breach the ceiling prescribed for
the commission
d) If the commission or remuneration in any form offer ed in a product is

substantially different between the distribution channels, the Appointed
Actuary shall justify
i. The reasons for the difference;

ii. How the difference is allowed in the pricing along with the volumes
projected for each distribution channel;
iii. The premium for each such distribution channels arrived independently
and altogether combined.
e) Provided where the policies are procured by Direct marketing, no

commission shall be payable
Pension Products
6. General Provisions with respect to Pension and Annuity Products (22)
a) Pension products may be offered on any of the following platforms:
i. Individual non-linked pension products;

ii. Group non-linked pension products;
b) Regulations 26 to .33 of .IRDA (linked Insurance Products) Regulation,

2013 shall be applicable m case of pension products offered under the
non-linked variable, insurance products. And the provisions of the
32 IC-83 GROUP INSURANCE AND RETIREMENT BENEEFITS
tRDA OF INDIA (NON-LINKED INSURANCE PRODUCTS) REGULATIONS, 2013
CHAPTER 2
Pension Products laid do~n below shall be applicable to all non-linked

products other than non-linked variable insurance products.
c) Defined Assured Benefits:
i. All individual pension products shall have explicitly defined assured

benefit that is payable on:
./ Death; and
./ Vesting
ti. The defi ned assured benefit shall be disclosed at the time of sale.
iff. The assured benefit shall be utilized on the vesting date OR on date of
deat~ as stipulated in the R~gulati on 24 and 25 (81h and 9th point) , as
applicable.
iv. Pension products offered by the insurers may have an insurance cover
throughout the deferment period or may offer riders. The sum of all the
rider premiums attached to the pension product shall not exceed 15% of
the premium paid for the pension policy. Such rider premiums shall be
separately accounted for and shall not be included in arriving at the
assured benefit as stipulated in c) above.
7. Surrender Value and Options on Surrender (23)
a) For other than non-linked variable insurance products, the surrender w

value shall be as stipulated in Regulation 35 (point 19 explained below
and the extant Income-tax Rules shall be complied with at the time of
I
closure of the contract at the end of t he lock-in-period.
b) On the date of surrender, the policyholder shall exercise one of the

following options:
i. To commute to the extent allowed under lncome·tax Act and to utilize

the balance amount to purchase immediate annuity from the same
insurer, which shall be guaranteed for life, at the then prevailing annuity
I pension rate, or
ii. To utilise the entire proceeds to purchase the single premium deferred
pension product from the same insurer.
8. Options on Vesting (24)
On the date of vesting, the policyholder shall exercise one of the following
options:
CHAPTER 2
a) To commute to the extent allowed under Income-tax Act and to utilize

the balance amount to purchase immediate annuity with the same
insurer, which shall be guaranteed for life, at the then prevailing annuity
I pension rate, or
b) To utilise the entire proceeds to purchase the single premium deferred

pension product with the same insurer; or
c) To extend the accumulation period I deferment period within the same

policy with the same terms and conditions as the original policy prov;ded
the policyholder is below an age of 55 years, subject to underwriting if it
there is a sum at risk on death.
9. Options to the nominee on death of the policyholder (25)
If the policyholder dies during the deferment period, the nominee shall exercise
one of the following options:
a) To utilise the entire proceeds of the policy or part thereof for purchasing
an annuity at the then prevailing rate from the same insurer; or
b) Withdraw the entire proceeds of the policy;
10. Financial Planning (26)
For the purpose of financial planning, any pension product offered by the
insurer shall comply with the sales literature guidelines issued by the life
insurance Council circular number LCISP!Ver. 1.0 dated 3rd February, 2004 and
shall also necessarily disclose:
a) An illustrative target purchase price for each policyholder considering

the premium payment capacity, age, vesting age and the future
expected conditions.
b) Possible risks involved, if any, including the targeted pension rate in

meeting the targeted purchase price.
c) Possible risks involved, if any, in purchasing the targeted pension rate I

annuity rate.
d) An illustrative target annuity I pension rates for the illustrative target

purchase price.
11. A yearty disclosure shall be sent to each policyholder as per specified format
tn regulation in Annexure-Ill , on 1st April indicating (27):
a) The current accumulated I available amount;
IRDA Of INDIA (NON-~INKED I NSURA~CE PRODUCTS) REGULATIONS , 2013
CHAPTER 2
- - - ·-···- - - ---
b) The ex~ted accumulated I available amount on the date of vesting on
the bas1s ~f the _then prevailing and the likely assumed economic &
de~ograph1c enVIronment, as relevant with the caveat, that the
projected rates shall not reflect any guarantee;
c) Likely an~uity amounts based on the then prevailing annuity rates and on
ass~med mterest rates of 4% p.a. and 8% p.a. with the caveat, that the
projected rates shall not reflect any guarantee;
12. Fund Based Groups Non-Linked Pension Products (28)
a) For all fund based group non-linked pension products with the defined
benefits subscribed to by an employer, where the scheme does not
maintain individual member accounts and only maintains a
superannuation fund:
i. There shall be an assured benefit that shall be applicable on the entire

superannuation fund available with the insurer.
ii. For exits on account of death, retirement or any other exit allowed in
accordance with the scheme rules as agreed at the inception of the
contract with group policyholder, the insurer shalt make payments from
the superannuation funds, subject to availability of such funds, as per
the terms of the scheme rules applicable to the member who is exiting.
iii. Except for exits as per the scheme rules, no other withdrawals shalt be
allowed.
b) For aU fund based group non-linked pension products with the defined
contributions subscribed to by an employer, where the scheme maintain
individual member accounts:
i. There shall be an assured benefit that shall be applicable on each of

such individual accounts.
ii. For exits on account of death, retirement or any other exit allowed in
accordance with the scheme rules as agreed at the inception of the
contract with group policyholder, the insurer shall make payments from
the superannuation funds, subject to availability of such funds, as per
the terms of the scheme rules applicable to the member who is exiting.
iii. Except for exits as per the scheme rules, no other withdrawals shall be
allowed.
c) Provisions stipulated in Regulations 23, 24 and 25 (points 7, 8 and 9

above) shall not be applicable to group non·tinked pension products;
however the benefits on exits shall be subject to the scheme rules.
------------~·~& ._ ..-.....~~------~---·--------.--.-. .-~·~sus..~~~
CHAPT E:R 2
d) Provisions stipulated in R~gulation 31 (e) (point 15) shall apply in case of

complete surrender of the policy.
e) Where the group policyholder maintains superannuation funds with more

than one insurer, the group policyholder shall have the option to choose
the insurer to purchase the immediate annuity.
13. For the purpose of this Regulation (29)
a) Target purchase price shall mean an absolute amount guaranteed at the

outset of the contract or the accumulated vatue of the premiums I
contributions accumulating at an illustrative rate of 4% p.a. and 8% p.a.,
which is expected to meet the policyholder's pension needs after
allowing for commutation.
b) Targeted pension rate shall mean the pension that a policyholder

expects to receive at the date of vesting at an illustrative assumed rate
of interest of 4%p.a. and 8%p.a. allowed in pricing the annuity
c) "Guaranteed for life" shall mean:
i. An amount of annuity is guaranteed, in absolute terms, at the time of

vesting or at the time of surrender or at the time of sale and
ii. Such guaranteed amount shall become payable as long as the
policyholder survives.
d) An assured benefit means at least one of the guarantees from the

following options of providing either:
i. Non·zero positive rate of return on the premiums paid, excluding service

tax, from the date of payment to date of vesting or
ii. An absolute amount to be paid on death or maturity (which shall result
in non·zero positive return) .
./ In both the cases, the amount of such guarantee shall be

disclosed at the time of purchase of contract .
./ The non·zero positive return on death may be more than the non -
zero positive return on maturity I vesting.
./ A guaranteed maturity benefit (in absolute amounts) which shall
be utilized at the vesting date or guaranteed death benefit (in
absolute amounts) payable on death shall be disclosed at the
time of purchase of contract.
e) The prevailing annuity rate shall mean the annuity rates that are
approved by the authority as per the file and use procedure and are
attached to the pension products.
IRDA OF INDIA (NON-LINKED INSURANCE PRODUC.TS) REG
ULATIONS, 2013
CHAPTER 2
f) Commutation shalt mean the ivin u

payable from vesting 1 surrend!r f g P. of ad~art or all of the annuity
or an lmme late lump sum.
Group Products
14. Group Non-linked Products (30)
a) Employer-Employee Group Products:
Under the group business, only the following group products shall be
permitted for employer-employee groups:
i. Fund based Group Insurance products.
ii. G~oup Credit Life Insurance products, provided the premiums are aligned
Wl~h that ~f Pure Term products with similar term and entry age, and
swtably adJusted to the decreasing cover.
iii. Single premium Group Term insurance Products.
iv. Group Savings Variable Insurance Products offered.
v. One year renewable group term life insurance products.
vi. One year renewable group health insurance products.
vii. Group immediate annuity products.
b) Non-Employer-Employee Group Products:
Under the group business, only the following group products shall be
permitted for non-employer- employee groups:
i. Group term insurance products with minimum term of 5 years shall be ·

allowed only under the micro-insurance products provided the premiums
are aligned with that of pure term products with similar term and entry
age. The maximum premium shall not exceed Rs. 750/- per annum per
member under these products.
ii. Group Credit Life Insurance products, provided the premiums are aligned
with that of Pure Term products with similar term and entry age, and
suitably adjusted to the decreasing cover.
iii. Single premium Group Term insurance Products offered to only non-
employer-employee homogeneous groups.
iv. Group Savings Variable Insurance Products offered to only non-employer-

employee homogeneous groups.
IC·83 GROUP INSURANCE AND RETIREMENT BENEEFITS 37
CHAPT£R 2 IRDA OF INDIA (NON-LINKED INSURANCE PROD~CTS) REGULATIO_I'IS, 201)
•ffCTA
v. One year renewable group term life insurance products.
vi. One year renewable group health insurance products.
vii. Government (Central or State) sponsored Group Insurance Products 1

Schemes.
For the purpose of this regulation, non-employer-employee homogeneous

groups shall mean!
i. Any Associations, where the members represent a particular profession 1

trade I domestic workers I Anganwadi workers;
ii. Government agencies;
iii. Any Co-operative Societies;
iv. Parents of school I college students as members;
v. Any other groups as may be approved by the Authority;
15. Fund based Group Non-Linked Products (31)
a) Fund based group non-linked products are those which are offered to
Employer - Employee groups and consists of:
i. Group Non-Unked Superannuation Product;

ii. Group Non-Unked Gratuity Product;
iii. Group Leave Encashment Product;
b) Provisions stipulated in Regulations 6 shall not be applicable to fund

based group non-linked products. However, the fund based group non-
linked policies stipulated in Regulations 31 (a) (ii) & 31 (a) (Hi) above
shall have minimum life cover as approved under File and use Procedure,
with an explicit mortality charge levied.
c) The premium with respect to group products shall be made in

accordance with the Actuary's certificate submitted by the employer in
accordance with the AS15 (Revised). Where the fund is overfunded I in
surplus as per such certificate, the insurer may allow "nil contributions I
premiums" under the policy and in all such cases, the policy shall not be
treated as discontinued.
d) The fund based group non-linked products shall not allow any top-ups,
unless required as per the actuary's certificate in accordance with the AS
15 (Revised), to address the underfunding of the scheme.
38 IC-83 GROUP INSURANCE AND RETIREMENT BENEEFITS
-· .... . . .., ...
e) The fund based group non-linked products may levy a surrender charge
not exceeding 0.05 per cent of the total policy account value, with a
maximum of Rs. 5,00,000/ ·, if the policy is surrendered within thi rd
renewal of the policy.
f) Provisions stipulated in Regulations 34, 35, 36 and Regulation 37 of IRDA

(Linked Insurance Products) Regulations, 2013 (point 22, 23, 24 & 25 as
explained in next section) shall be applicable to fund based group non·
linked variable insurance products:
i. At each individual account level, if individual accounts are maintained;
ii. At each policyholder fund level, if individual accounts are not

maintained and only one fund is maintained.
g) Fund based group non-linked pension products may offer life insurance
cover with an explicit mortality charge levied.
16. Fund Based Group products (32) stipulated in Regulations 30 (point 14 (a) (ii)
& (iii) and 14 (b) (i), (ii) & (iii)) (explained above) shall acquire surrender
value as stipulated in Regulation 35 (point 19 below), if the premium
payment term is either single premium or limited premium paying term.
17.Group Savings Variable Insurance Products (33)
Group saving variable insurance products shall be simple and easy to

understand. The following features shall be the minimum mandatory
requirements under these products:
a) The minimum size of the group shall be at least 20 and the maximum
size of the group shall not exceed 5000. If the group size is more than
5000, the policy shall be split appropriately to ensure that the maximum
size does not exceed 5000 in any group.
b) The term of the product shall be at least 5 years.
c) All the provisions applicable to individual variable insurance products

shall be applicable to group savings variable insurance products.
d) Discounts in premium allocation charges shall be offered for group sizes,

premium sizes etc. and shall be explicitly stated at the outset.
e) The front page of the Prospectus shall state clearly in bold font the
following:
./ Minimum premium payment term and maximum premium payment

term;
./ Mode of premium payments allowed;
IC· 83 GROUP INSURANCE AND RETIREMENT BENEEFITS 39
./ Minimum premium amount and maximum premium amount;
./ Minimum policy term and maximum policy term;
f) The prospectus shall be given to each member of the group before the
sale is concluded and specific consent in writing from each member shall
be take-n for the premium amount, premium paying term, mode of
premium payment and the policy term as agree-d by the policyholder,
except for micro-insurance products. In case- of micro-insurance
products, the onus lies on the group policyholder to disseminate the
information to its members and obtaining written consent.
g) Provisions stipulated in Regulations 34, 35, 36 and 37 of IRDA (Linked

Insurance Products) Regulations, 2013 (point 22, 23, 24 & 25 as
explaine-d in next section) shall be applicable- to group non-linked
variable- insurance products.
h) The insurer shall monitor the experience regularly and submit an analysis
of all the products in terms of expected and actual experience as an
annexure to the Appointed Actuary Annual Report.
i) In case of surrender of the group policy, the insurer shall give an option
to the individual members of the group, on such surrender, to continue
the policy as an individual policy and the insurer I intermediary if any,
shall continue to be responsible to serve such members tilt their
coverage is terminated.
18. Group Insurance Products Admtntstratton (34)
a) The premium charged and benefits admissible to each member of the

group shall be clearly specified in the group policy and the group
policyholder shall not have the liberty to vary the premium or benefits
with regard to the individual members.
b) Group dliscounts on premium shall be given for the benefit of the insured
members of the group and shall not be appropriated as additional
remuneration by the agent or corporate agent or broker or group
policyholder. Such discounts shall be based on valid underwriting
considerations such as the group size and shall be passed on to the
members.
c) Where a part or whole of the premium is paid by the group policyholder,

for example, the employer in respect of insurance of his employees, the
discounts may be shared by those who paid the premium in proportion to
the premium paid by them.
IRDA OF INDIA (NON-LINKED INSURANCE PRODUCTS) REGULATIONS, 20 13 CHAPTER 2
d) There shall be no other payment whether as management expenses or

documentation expenses or profit commission or bulk discount or
payment of any other description, to the agent or corporate agent or
group policyholder. The group policyholder shall be specifically
prohibited from collecting by way of premium from the members of a
group, any amount higher than the amount charged by or paid to the
insurer for such insurance.
e) In non-employer-employee cases, the individual group member would be

treated as the insured beneficiary and the group policyholder will be
only the holder of the group policy, in such cases every care shall be
taken by the insurer in the matter of issue of certificate of insurance to
the members of the group, who are insured. It is necessary that such
certificate contains information on the schedule of benefits, the
premium and charges, if any, levied and important terms and conditions
of the insurance contract. The certificate shall also state the procedure
to be followed to register a claim with the insurer including the full
address of the office of the insurer where the claim shall be registered.
While the group policyholder may play a role in facilitating the
registering and settlement of a claim, the insurer is totally responsible
to ensure that the claim payment is made in the name of the insured
member or his/her nominee even if the cheque is sent to the group
policyholder for administrative convenience or through any other
electronic mode of payment to the specific bank account of the insured.
f) In respect of non-employer-employee groups the insurer may provide the
facility to the group policyholder to issue certificates of insurance to
persons insured under the group, provided the underwriting guidelines
for acceptance or rejection of such a risk do not require use of
subjective judgment and can be easily programmed into a computer that
will review acceptance and print the certificate of insurance. In such
cases, the certificate forms shall be supplied by the insurer with in-built
security features and in pre-numbered lots to the group organizer or
manager. Utilisation and full accounting of the certificate forms should
be independently checked by the staff of the insurer every time before
furnishing a fresh lot of forms, either by personal verification or based
on a certificate by the auditor of the agent,
g) The insurer, under an agreement with the group policyholder, may
leverage on the existing infrastructure, if any, for better administration
of the scheme with respect to the following services:
i. Data management: Documenting the list of the persons insured under
the group policy from time to time and supporting the insurer with
quality data on all members of the scheme and Know Your Customer
requirements. The data management shall enable seamless transfer of
data to insurer at regular intervals of each month or at short intervals as
decided between the insurer and the group policyholder, to ensure
efficient claims handling and establishing accurate reserving and pricing.
IC-83 GROUP INSURANCE AND RETIREMENT BENEEFITS 41
IRDA OF INDIA (NON-LINKED INSURANCE PRODUCTS) REG_~~!_ION~· 2_~1 3
CHAPTER 2
-------- - - ·· · · - - -- - - -
1. Collection of Premium: Group policyholder may support the insurer
through prompt premium collections under contributory schemes and its
remittance to the insurer on a timely manner for better cash flow
management.
W. Issuance of Certificate of Insurance: The insurer shalt be responsible to

issue ce1rtificate of insurance to each group member of the policy where
individual accounts are maintained under fund based group policies.
However, the insurer may provide the facility to the group policyholder
to issue certificates of insurance to persons insured under the group,
provided the underwriting guidelines for acceptance or rejection of such
a risk do not require use of subjective judgment and can be easily
programmed into a computer that wilt review acceptance and print the
certificate of insurance.
The procedure to be followed includes:
(a) The ·Certificate shalt contain information on the schedule of benefits,

the premium to be paid and important terms and conditions of the
insurance contract.
(b) The certificate shalt also state the procedure to be followed to

register a claim with the insurer including the full address of the
office of the insurer where the claim should be registered.
(c) The certificate forms shalt be supplied by the insurer with in-built
security features and in pre-numbered tots to the group. Before
furnishing a fresh lot of forms, insurer shalt personalty verify the
previous issue of certificate of insurers.
(d) Under any circumstances the insurer shalt be responsible for the
certificate of insurance issued by a group policyholder, in certificate
forms provided by the insurer.
(e) The insurer shalt conduct a surprise inspection of the books and
records of the non-employee - employer group policyholder at least
once a year to ensure total compliance with this Regulation or
require a certificate of such compliance from the auditors of the
group policyholder, at least once a year.
(f) !he insurer shalt be held responsible to the group members insured,
m _respect of the group policy in case of failure of the group
pohc:yhot~er to account for the business to the insurer, if the group
member msured can prove that he had paid the premium and
~ecured a proper receipt leading him to believe that he was duty
msured.
--- -
IRDA OF INDIA (NON-LINKED INSURANCE PRODUCTS) REGU LATIONS, 2013 CHAPTER 2
iv. Claims Settlement: The insurer may take the services of the group
policyholder in facilitating the registering and settlement of a claim,
however, the insurer is totally responsible to ensure that the claim
payment is made in the name of the 'insured member or his/her nominee
even if the cheque is sent to the group policyholder for administrative
convenience or through any other electronic mode of payment to the
specific bank account of the insured. This payment shall be made only
when the service is rendered.
h) The insur·er may make payments directly to the group policyholder for
the services rendered as stipulated in g) above under an agreement. The
Authority may prescribe such remuneration to be paid to the Group
Policyholder from time to time for each of the services rendered as
stipulated in g) above and the current limits shall not be more than:
i. For data management: Rs. 15/- per member per annum;
ii. Premium collection: Rs. 10/- per member per annum;
iii. Issuance and delivery of certificate of insurance: Rs.1 0/- per member
subject to a minimum of Rs. 500/ •• Issue of duplicate certificate of
insurance shall not be done by the group policyholder;
iv. Claims settlement: Rs.10/ · per claim;
If the business is procured through an intermediary, the remuneration with

respect to the functions stipulated in g) i, ii and iv above shall not be paid to
the group policyholder, as these functions are part of obligations of an
intermediary. However, with respect to the services stipulated in g) iii
above, the services of a group policyholder may be utilized and payment
may be made as stipulated in h) iii above.
i) If the business is procured directly, the insurer:
i. May utilise the services of the group policyholder with respect to the
functions stipulated in g) above and may make payments as stipulated in
h) above.
ii. May pass on the savings, if any, in the commission or remuneration

through discount in premium allocation charges.
j) If the business is procured through an intermediary, the remuneration

with respect to the functions referred in g) i, ii and iv shall not be paid
to the group policyholder, as these functions are part of obligations of an
intermediary. However, with respect to the services referred in g) iii,
the services of a group policyholder may be utilised and payment may be
made as stipulated in h) iii.
CHAPTER 2 IRDA OF INDIA (NON-LINKED INSURANCE PRODUCTS) REGULATION S. 2013
·· - - - --- - -- .
k) If the business is procured directly, the remuneration with respect to the

functions referred in g) i, ii and iv may be paid to the group
policyholder, only if the group policyholder has provided all the services
in accordance with the agreement. The payments to the group
policyholder:
i. All put together shall not in any case exceed 20% of the commission
payable as stipulated in Regulation 21 (point 5 above) in case of both
Single premium products and other than single premium products.
n. Shall ensure that for each of the services individually, the payments shall
not exceed the rated proportion to the overall limit of 20% of the
commission payable as stipulated in Regulation 21 (point 5 above) in case
of both Single premium products and other than single premium
products.
19.Surrender Value (35)
All individual savings and protection oriented products such as non-linked life
insurance products, and non-linked pension products, other than pure
protection products such as term insurance, health insurance and immediate
annuities, shall acquire a guaranteed surrender value and special surrender
value, if higher. The guaranteed surrender value shall acquire in the following
manner:
a) Products with a Premtum Paytng Term (PPT) of 10 years or more: If all

premiums have been paid for at least three consecutive years, the policy
shall acquire a guaranteed surrender value, to which shall be added the
surrender value of any subsisting bonus or guaranteed additions, as
applicable, already accrued to the policy.
b) Products with a Premtum Paytng Term of less than 10 years: If all

premiums have been paid for at least two consecutive years, the policy
shall acquire a guaranteed surrender value, to which shall be added the
surrender value of any subsisting bonus or guaranteed additions, as
applicable, already accrued to the policy.
c) Other than sfngle premium products: The mm1mum guaranteed

surrender value shall be the sum of guaranteed surrender value and the
surrender value of the any subsisting bonus or guaranteed additions, as
applicable, already accrued to the policy. The guaranteed surrender
value shall be at least:
i. 30% of the total premiums paid less any survival benefits already paid, if
surrendered between the second year and third year of the policy, both
inclusive.
IRDA OF INDIA (NON· LINKED INSURANCE PRODUCTS) REGULATIONS, 201 3 CHAPTER 2
ii. Subject to (iii) , 50% of the total premiums paid less any survival benefits
already paid, if surrendered between the fourth year and seventh year of
the policy, both inclusive.
iii. 90% of the total premiums paid less any survival benefits already paid, if
surrendered during the last two years of the policy, if the term of the
policy is less than 7 years.
iv. The surrender value beyond the seventh year shall be filed by the insurer
under the File and Use for clearance. Such surrender value shall consider
the premiums already paid and the possible asset shares on such
products.
d) Single premium products: The guaranteed surrender value shall be the

sum of guaranteed surrender value and the surrender value of the any
subsisting bonus already attached to the policy. The guaranteed
surrender value shall be at least:
i. 70% of the total premiums paid less any survival benefits already paid, if
surrendered any time within third policy year.
ii. Subject to (iii) , 90% of the total premiums paid less any survival benefits
already paid, if surrendered in the fourth policy year.
iii. 90% of the total premiums paid less any survival benefits already paid, if
surrendered during the last two years of the policy, if the term of the
policy is less than 7 years.
iv. The surrender value beyond the fourth year shall be filed by the insurer
under the File and Use for clearance. While determining such surrender
value the insurer shall consider the premiums already paid and the
possible asset shares on such products.
v. Surrender value of any subsisting bonus already attached to the policy

shall be filed and approved under the File and Use explicitly.
e) Every such policy shall show the guaranteed surrender value of the policy
at the close of each year after the second year/third year/as applicable
of its currency or at the close of each period of three years throughout
the currency of the policy in the policy document.
f) A policy which has acquired a surrender value shall not lapse by reason
of the non-payment of further premiums but shall be kept alive to the
extent of the paid-up sum insured, and the paid-up sum insured shall
include in full all subsisting reversionary bonuses that have already
attached to the policy.
IRDA Of INDIA (NON-LINKED INSURANCE PRODUCTS) REGULATIONS, 201 3
CHAPTER 2
g) The minimum paid-up value shall be in accordance with the Section 113
of the Insurance Act, 1938.
h) The surrender value shall be the higher of the guaranteed surrender

value and the special surrender value.
i) The special surrender value shall represent the asset share in case of the
par policies, where the asset share shall be determined in acc.ordance
with the guidance or practice standards issued by the lnst1tute of
Actuaries of India. For non-par policies the special surrender value shall
reflect the experience of the insurer and shall be determined as per the
proxy asset share in accordance with the guidance or practice standards
issued by the Institute of Actuaries of India.
j) The special surrender value shall be filed with the Authority under File
and Use.
k) The fund based group non-linked products may levy a surrender charge
not exceeding 0.05 per cent of the fund, with a maximum of Rs.
5,00,000/-, if the policy is surrendered within the third renewal of the
policy.
l) In case of surrender of the group policy, other than fund based group
policies, the insurer shall give an option to the individual members of
the group, on such surrender, to continue the policy as an individual
policy and the insurer/intermediary if any, shall continue to be
responsible to serve such members till their coverage is terminated.
m) The Authority reserves the right to instruct the insurer to withdraw any
product any time, if the persistency of the product appears to be low.
ITest Yourself 1
For n~n-~inked pension products, in case of single premium plan, the maximum
comm1ss1on that can be paid will be of single premium.
I. 1%
II. 2%
Ill. 3%
IV. 4%
IRDA 01- INUIA (LINI\I:LJ IN:>UKANI..I:. t'KULJ UI.. I :>J 1\I:.I..JULA IIUN), iUl j CHAPTER 2
[ B. IRDA of India (Linked Insurance Products) Regulations, 2013
Insurance companies need to comply with these Regulations for Linked

Insurance Products, the features as per Regulations are as follows:
1. Linked insurance products (2)
a) Linked insurance products shall be offered only under non·par individual

products and non-par fund based group products in any of the following
manner:
i. Unit Linked Products and

ii. Variable Linked Products
2. Unit Linked Insurance Products (ULIP) (3)
a) Unit Linked insurance products shall be offered in any of the following

manner:
i. Linked Individual Non-par;

ii. Linked Fund based Group Non-par;
b) These are the products where the benefits are partially or wholly
dependent on the performance of the underlying assets under each of
the segregated fund offered and shalt be operated as follows:
i. The premiums shall be allocated to such segregated funds, otherwise

called as unit funds, as per its net asset value and the benefits shall be
determined based on the performance of the underlying assets of such
segregated funds.
ii. The insurers may levy charges as stipulated in Regulation 35 (point 23

below) applicable to the unit linked products.
iii. The products shall comply with the maximum reduction in yield
requirements as referred st ipulated in Regulation 37 (point 25 below).
c) A unit linked policy may only offer the following death benefits:
i. The sum assured as agreed in the policy plus the balance in the unit fund
or
ii. Higher of the sum assured as agreed in the policy or the balance in the
unit fund.
In either case, the sum assured shall be at a minimum consistent with the
provision stipulated below.
IC·8l GROUP INSURANCE AND RETIREMENT BEHEEFITS 47
CHAPTER 2 IRDA 0~ INDIA (LINKE~~URANCE PRODUCTS) REGULATIO~S . 20 13
- - - ---- - --
d) A minimum maturity benefit which shall be at least equal to the balance

in the unit fund on the date of maturity.
Beneftts Payable on Death
The minimum maturity benefit shall be at least equal to the balance in the
unit fund on the date of maturity.
No cover shall be extended after the expiry of the policy term and only
settlement options under unit linked products, which are clearly outlined at
the commencement of the contract, may be allowed .
In case of death due to suicide, within 12 months from the date of inception
of the policy or from the date of revival of the policy, the nominee of the
policyholder shall be entitled to the fund value I policy account value, as
available on the date of death.
In case fraud or misrepresentation, the policy shall be cancelled

immediately by paying the surrender value, subject to the fraud or
misrepresentation being established by the insurer in accordance with
Section 45 of the Insurance Act, 1938.
For policies issued on minor life, the date of commencement of policy and
date of commencement of risk shall be same.
At no time the death benefit under a life insurance product or a benefit

assured under a pension product on death or a health related benefit under
a health insurance product shall be less than 105 percent of the total
premiums including top-ups paid, excluding the service tax.
Poltcy Term, Premium Paying Term & Commission
3. Mtntmum Policy Term (7)
The minimum policy term of fund based group linked products, shall be on
annually renewable basis.
4. Commtsstons or remuneration tn any form (9)
Commission or remuneration in any form for the procurement of a\l

individual policies in respect of all the Distribution Channels except the
Direct Marketing shall not exceed the following:
Pension Products:
1. In case of single premium, 2 per cent of single premium.

it. In case of other than single premium:
r.-.--- --
IRDA OF INDIA (LINKED INSURANCE PRODUCTS) REGULATIONS, 2013
CHAPTER 2
./ 7Y2 per cent of the first year's premium, and

./ 2% per cent of each renewal premium.
a) For all distribution channels, except direct marketing, the maximum

commission or remuneration in any form with respect to fund based
group products as stipulated in Regulation 41 (a) (point 26 below), with
respect to all premium payment modes, shall be:
i. 2 per cent of the premiums paid during the year with a ceiling of rupees
one lakh per scheme for the entire year.
ii. At subsequent renewal, 2 per cent of the premiums paid during the year
with a ceiling of rupees one lakh per scheme for the entire year.
b) If the commission or remuneration in any form offered in a product is

substantially different between the distribution channels, the AA shall
justify.
i. The reasons for the difference;
ii. How the difference is allowed in the pricing (i.e. charging structure)
along with the volumes projected for each distribution channel;
c) Provided where the policies are procured by Direct marketing, no

commission shall be payable.
Discontinuance Terms
5. Grace Period (10)
The grace period for payment of the premium for all types of linked insurance
policies, except single premium policies shall be:
a) Fifteen days, where the policyholder pays the premium on a monthly

basis;
b) Thirty days, in all other cases.
6. Lock-in Period (11)
All linked insurance products shall have a lock-in period of five years from the
date of inception of the policy.
7. Options of a policyholder upon discontinuance of the policy during the

first five years ( 12)
a) For other than single premium policies, a policyholder shall be entitled

to exercise one of the following options upon the discontinuance of the
policy:
IC-83 GROUP INSURANCE AND REllREMENT BENEEFITS 49
CHAPTER 2 IRDA OF INDIA (LINKED INSURANCE PRODUCTS) REGULATIONS, 2013
- - -- - - - ------------ - - - · · ·· . -·- -- - - -
i. Revive the policy within a period of two years, or
n. Complete withdrawal from the policy without any risk cover
b) For single premium policies, the policyholder shall be entitled to

exercise the option stipulated in sub-regulation a ii above.
8. Obligations of an insurer upon discontinuance of a policy before lock-in-

pertod (13)
a) Where a policy is discontinued, the insurer shall take the following steps
to enable the policyholder to exercise the option as stipulated in
Regulation 12 (point 7 above):
i. Send a notice within a period of fifteen days from the date of expiry of
grace period to such a policyholder to exercise the said options within a
period of thirty days of receipt of such notice:
Provided that where the policyholder does not exercise the option within
the notice period of thirty days, the treatment of such policy shalt be
subject to provisions stipulated in Regulation 15.
Explanation: The fund value I policy account value of the policy shalt be
part of the segregated fund chosen I total policy account tilt the
policyholder exercises his I her option or till the expiry of thirty days of
notice period whichever is earlier. During this period the policy is
deemed to be in force with risk cover as per terms and conditions of the
policy.
i . To impose discontinuance charges only to recoup expenses incurred

towards procurement, administration of the policy and incidental
thereto;
ii. To design the discontinuance charges to encourage the policyholder to

continue with the contract for the full term;
iv. To ensure that the discontinuance charges reflect the actual expenses
incurred;
v. To structure the discontinuance charges within the statutory ceilings on

commissions and expenses; and
vi. To ensure that the charges levied on the date of discontinuance (as a
perc~ntage of one annuatis~ premium or a percentage of single
prem1um) do not exceed the limits specified below: -
---IADA~F I~ DIA (LINKED IHSU~HCE PRODUCTS) REGULATIONS , 2013
CHAPTER 2
Table 4: For annual premiums
Where the policy Maximum Discontinuance Maximum Discontinuance

is discontinued Charges for the policies Charges for the policies
during the policy having annualised premium having annualised premium
year up to Rs. 25,0001- above Rs. 25,0001-
Lower of 20% • (AP or FV 1 Lower of 6%• (AP or FV I
policy account value) policy account value)
1
subject to a maximum of Rs. subject t o a maximum of Rs.
3000 6000
Lower of 15% • (AP or FV I Lower of 4% • (AP or FV I
2
subject to a maximum of Rs. subject to a maximum of Rs.
2000 5000
3
subject to a maximum of Rs. subject to a maximum of Rs.
1500 4000
4
subject to a maximum of Rs. subject maximum of Rs.
1000 2000
5 and onwards Nil Nit
Table 5: For Single premium policies
Where the Maximum Discontinuance Maximum Discontinuance

policy is Charges for the policies Charges for the policies
discontinued having Single Premium up to having Single Premium
during the policy Rs. 25,0001 - above Rs. 25 ,0001-
year
Lower of 2% • (SP or FV I Lower of 1% • (SP or FV I
policy account value) subject policy account value)
1
to a maximum of Rs. 30001- subj ect to a maximum of Rs.
60001·
Lower of 1.5% • (SP or FV I Lower of 0. 5% • (SP or FV I
policy account value) subject poliicy account value)
2 subject to a maximum of Rs.
to a maximum of Rs. 20001·
50001·
Lower of 1% • (SP or FV I Lower of 0.25% • (SP or FV I
policy account value) subject pol'icy account value)
3 to a maximum of Rs. 15001· subject to a maximum of Rs.
40001·
Lower of 0.5% • (SP or FV I Lower of 0.1% • (SP or FV I
policy account value) subject pol.icy account value)
4 to a maximum of Rs. 10001· subject to a maximum of Rs.
20001·
5 and onwards Nil Nil
IC·U GROUP INSURANCE AND RETIREMENT BENEEFITS 51
~
C~
HA~P~
TE~R~2~------------~~--
AP - Annualised Premium
SP - Single Premium
FV - Fund Value
b) Provided that where a policy is discontinued, only discontinuance charge

and fund management charge, which shall not exceed 50. bps per annum
on discontinuance fund I policy account value, as applicable, may be
levied by the insurer and no other charges by whatsoever name shall be
levied.
c) Provided that no discontinuance charges shall be imposed on top-ups

premiums.
9. Minimum Guaranteed Interest Rate (19)
a) The minimum guaranteed interest rate applicable to the discontinued

fund 1 discontinued policy account shall be at an interest rate of 4 per
cent per annum.
b) The excess income earned in the discontinued fund I discontinued policy

account over and above the minimum guaranteed interest rate shall also
be apportioned to the discontinued policy fund I discontinued policy
account value in arriving at the proceeds of the discontinued policies and
shall not be made available to the shareholders.
10. Obligations of the insurer in case of disconUnuance of policy after the

lock-in-period (20)
a) In case of discontinuance of policy after the tack-in-period, the insurer

shall offer a revival period of two years from the date of discontinuance
of premium. During this period the policy is deemed to be in force with
risk cover as per terms and conditions of the policy.
i. Where a policy is discontinued, the insurer shall take the following steps
to enable the policyholder to exercise the options:
(a) Revive the policy within a period of two years, or
(b) Complete withdrawal from the policy without any risk cover
(c) Convert the policy into paid-up policy, with the paid·up sum assured
in accordance with Section 113(2) of the Insurance Act, 1938 i.e. sum
assured multiplied by the total number of premiums paid to the
original number of premiums payable as per the terms and conditions
of the policy.
CtiAPTER 2
ii. Send a no.tice within a pe~od of fifteen days from the date of expiry of
gra~e peno~ to such a policyholder to exercise the said options within a
penod of th1rty days of receipt of such notice:
Provide? that :Where th.e policyholder does not exercise the option within
the not1ce penod of thirty days, the treatment of such policy shall be by
default, in accordance with (b) above. '
Explanation: The fund value I policy account value of the policy shall be
part of the segregated fund chosen/total policy account till the policyholder
exercises his I her option or till the expiry of thirty days of notice period
whichever is earlier. During this period the policy is deemed to be in force
with risk cover as per terms and conditions of the policy.
Free look Period, Surrender Value, Top-up Premium, Partial Withdrawals

and Settlement Options
11. Return of Policy during the Free-look period (21)
a) In case of unit linked products, the policyholder shall be entitled to an

amount which shall at least be equal to non -allocated premium plus
charges levied by cancellation of units plus fund value at the date of
cancellation less expenses in accordance with the IRDA (Protection of
Policyholders' Interests) Regulations 2000, if the policyholder returns the
policy.
b) In case of variable insurance products, the policyholder shall be entitled

to an amount in accordance with the IRDA (Protection of Policyholders'
Interests) Regulations 2000, if the policyholder returns the policy.
12. Surrender Value (22)
a) Surrender Value: All individual linked insurance and pension products

shall acquire surrender value in the following manner:
i. linked Products other than linked pension products shall acquire

surrender value stipulated in Regulations 15.
ii. linked Pension Products shall acquire surrender value stipulated in

Regulation 27 (point 16 below).
b) Where a linked insurance product acquires a surrender value during the

first five years, it shall become payable only after the completion of the
lock·in·period. After the lock-in period, the surrender value shall be at
least equal to the fund value I policy account value as on the date of
surrender.
IC·83 GROUP INSURANCE AND RETIREMENT BENEEFITS

53
CHAPTER 2 IRDA OF INDIA (LINKED INSURANCE PRODUCTS) REGULATIONS, 201 3
c) The "Surrender Value" or the "surrender value formula" shall be

published in the poticy document and all other promotional materials of
the policy.
13. Top-up Premium (23)
a) A top-up premium is an amount of premium that is paid by the

policyholders at irregular intervals besides basic regular premium
payments specified In the contract and is treated as single premium for
all purposes.
b) Top-up premiums can be remitted to the insurer during the period of

contract only, where due basic regular premiums are paid up to date and
if expressly allowed in the terms and conditions of the policy.
c) All top-up premiums made during the currency of the contract, except
for pension products, shall have insurance cover treating them as single
premium.
d) Top-up premiums once paid cannot be withdrawn from the fund I policy
account value for a period of 5 years from the date of payment of the
t 'Top-up' premium, except in case of complete surrender of the poticy.
e) Except for pension products, top-up premiums are not permitted during
the last 5 years of the contract.
f) For pension products, top-up premiums may be allowed unlimitedly,

subject to providing the assured benefits on each of the top-up
premiums paid.
g) For all other products other than pension products, at any point of time
during the currency of the contract, the total top-up premiums paid shall
not exceed the sum total of the regular premiums paid at that point of
time I single premium paid.
h) The minimum sum assured on top-up premium shall be based on the age
at payment of top-up premium but not on entry age.
14. Partial Withdrawals (24)
a) Partial withdrawal shall be allowed only after fifth poticy anniversary.
b) In the case of child policies, partial withdrawals shall not be allowed

until the minor life insured attains majority i.e. on or after attainment
of age 18.

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IC 83 - Compressed-1

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CHAPTER 1

Group insurance is an insurance that covers a defined group of people, for

2. Income Tax Act, 1961

3. EmployHS Provident Fund Schemes, 1952

With the enactment of this legislation th P .

The Employees' Provident Fund Sch

4. Employees' Provident Fund and Miscellaneous Provisions Act

In order to provide for certain additional benefits to the families of employees

5. Employees Deposit-Linked Insurance Scheme, 1976

The Scheme applies to the employees of any establishment or class of

6. Employees' Pension Scheme, 1995

• Survivor Pension: If death occurs during service period.

• Old Age Pension: Pension or Superannuation.

• Permanent Disability: In the event of member suffering Pension

The members having date of exit from EPS, 1995 on account of

1. Public Provident Fund Scheme

Public Provident Fund (PPF) is a scheme of the Central Government, framed

It is a disciplined investment avenue as your money is blocked for 15 years. The

Every subscription should be made in cash or through a crossed cheque or draft

Nomination facility is available. In the case of joint nominees, it is possible to

Second problem is debasement of currency and gover.nme~ts inflation policy as

8. The Payment of Gratuity Act, 1972

Gratuity was a gratuitous payment usually in operation when there was no

• For every completed year of service or part thereof in excess of six

It can be formulated as follows:

Monthly salary • 15 • No. of year of services I 26

The inability or unwillingness of workers to save enough for retirement and

Social security benefits

In the Indian ~on~ext, Social Security is a comprehensive approach designed to

a) The Employees' State Insurance Act, 1948 (ESI Act)

b) The Employees' Provident Fund and Miscellaneous Provisions Act,

c) The Workmen's Compensation Act, 1923 (WC Act)

d) The Maternity Benefit Act, 1961 (M.B. Act)

e) The Payment of Gratuity Act, 1972 (P.G. Act)

We will discuss various Social Security Schemes for organized and

I B. Employees Benefit Schemes

1. Object of Employee Benefit Schemes

The object of employee benefit schemes is to make adequate financial provision

a) Premature death or disability while in service and

Progresslve employers recognise that they have a responsibility towards their

2. Types of employee benefits of a company

The employee benefits of a company generally include: [

b) Bonus to the employees either on festive occasions or as a reward for

i. Salary above Rs. 2,500 is not considered for calculation of Bonus.

c) Social security benefits for employee welfare in the form of provident

e) Emp~oyees. who wish to voluntarily retire from an organisation are

3. Service Benefits through Insurance Contracts

The benefits to be provided to the employees are · bl d

I. Remunerative wage structure

IC. Pension Schemes - Occupational and lndtvtdual Schemes

Occupational pension schemes are arrangements established by employers to

a) Defined Benefit Schemes

A defined benefit occupational pension scheme is often based on final

b) Defined Contribution Schemes

In this arrangement, the employer (and sometimes also the employee)

It is also possible for an individual to make contributions under an arrangement

Individuals can contribute to individual pension plans of insurers which are

b) Group personal pensions

3. National pension System (NPS)

National Pension System (NPS) is an initiative of Pension Fund Regulatory and

To extend the coverage of NPS to the weaker and economically disadvantaged

The subscriber of NPS • Swavalamban account should not be covered under

NPS is made available to all citizens of India on voluntary basis and is