Group Gratuity Insurance
Group Gratuity Insurance helps employers meet statutory gratuity obligations by setting aside funds for employee benefits upon retirement or resignation.
- Medical Expenses
- Disability Benefits
- Death Benefits
What is Group Gratuity Insurance?
Group Gratuity Insurance is a financial product designed to help employers meet their statutory gratuity obligations to employees as per the Payment of Gratuity Act, 1972. It allows employers to systematically set aside funds to pay gratuity benefits to employees upon their retirement, resignation, or in case of death. These plans often combine insurance coverage with investment options to grow the gratuity fund over time.
Key Features of Group Gratuity Insurance
Statutory Compliance
Ensures that employers comply with the Gratuity Act, 1972, which mandates the payment of gratuity to employees who have completed five years of continuous service.
Investment Options
Funds can be invested in various financial instruments, including equity and debt funds, to grow the corpus over time. Plans may offer Unit Linked Insurance Plans (ULIPs) or traditional endowment options.
Tax Benefits
Contributions made by employers towards the gratuity fund are eligible for tax deductions under the Income Tax Act. Additionally, the gratuity received by employees is tax-free up to specified limits under Section 10(10) of the Income Tax Act.
Flexible Premium Payments
Employers can choose to make annual, semi-annual, quarterly, or monthly contributions. The policy terms are usually renewable annually.
Life Cover
Some plans offer a bundled life insurance cover for employees, providing an additional benefit in case of the employee's death during the service period.
Dedicated Management and Services
Insurance providers often appoint a dedicated relationship manager to help with policy administration and ensure smooth operations.
Expert Fund Management
Professional management of the funds ensures optimal returns on the contributions made towards the gratuity fund.
Why Choose Group Gratuity Insurance?
Employee Retention
Offering gratuity as part of the benefits package can help retain employees by providing them with a long-term financial benefit.
Financial Security
Ensures that the employer is financially prepared to meet gratuity payments without affecting the company's cash flow.
Encourages Loyalty
Demonstrates the employer’s commitment to employee welfare, which can boost morale and loyalty.
Simplified Administration
Insurance companies provide easy-to-manage solutions with the assistance of dedicated service teams.
Gratuity Act
Gratuity is given by the employer to his/her employee for the services rendered by him during the period of employment. It is usually paid at the time of retirement but can be paid earlier, provided certain conditions are met.
A person is eligible to receive gratuity only if he has completed a minimum of five years of service with an organization. However, it can be paid before the completion of five years at the death of an employee or if he has become disabled due to an accident or disease.
Who is covered under Gratuity Act?
Under section 1 of the Payment of Gratuity Act, group gratuity insurance is applied to:
- Every mine, factory, oilfield, port, plantation & railway corporation.
- All establishments or shops that have more than 10 employees in the preceding twelve months.
- The law shall continue to be applied to establishments or shops once the provisions of the Gratuity Act 1972 are applied, even if the strength of workers/employees falls below 10.
When is an Employee Eligible for Gratuity Payment?
Employee should be eligible for superannuation.
Employee gets retired.
Employee resigns after working for 5 years or more in an organization.
Employee dies due to illness, accident or suffers through a disability.
When is an Employee Eligible for Gratuity Payment?
Employee should be eligible for superannuation.
Employee gets retired.
Employee resigns after working for 5 years or more in an organization.
Employee dies due to illness, accident or suffers through a disability.
How is Gratuity Amount Calculated?
Gratuity Amount = (Last drawn Monthly Basic Salary + D.A) 15 No. of years of service / 26
How Group Gratuity Insurance Works?
Group Gratuity Insurance can be considered as a fund which the employer keeps with the insurer, in order to pay their future Gratuity Liability to employees. Under this policy, the fund given to life insurers by the employer is kept invested in the market (Equity or Debt) by insurers after due discussion and employer consent on investment fund options. At any time, the insurer is liable to pay not more than what is available under the fund.
Why Employers Should Have Group Gratuity Insurance?
Actuarial Advice
Insurer actuarial advice over the fund comes from great expertise and knowledge domain of all industries statistics. Thus, employers could visualize their future liability under this act.
Sufficiency of Fund
If actuarial advice is ideally followed, it is most likely that the fund itself would be sufficient enough for relieving employers from all Gratuity Act obligations.
Tax Benefits for Employer
The contributions/premiums paid by an employer in respect of an employee up to 8.33% of his/her salary, in a financial year, are treated as an expense for tax purposes in the year of payment. Income from investments is exempt from tax under section 10(25)(iv) of the Act.
Tax Benefits for Employee
Gratuity benefits are tax-free up to Rs. 20,00,000 in the hands of the employee. The contribution made by the employer is not included in the value of taxable perquisites in the hands of the employee. Any death benefit under the Group Term Insurance is tax-exempt under section 10(10D) of the Income Tax Act, 1961.
What are the Steps for Taking Group Gratuity Insurance?
Employer creates a trust for the administration of the fund under the Gratuity scheme.
Initial contribution based on actuarial advice.
Discuss investment preferences and strategies with the Insurance Broker and Insurance Company.
Contribute to the fund and review investment return and fund growth periodically.
Inform the insurance company at regular intervals whenever gratuity liability arises from employees.
What are the Steps for Taking Group Gratuity Insurance?
Employer creates a trust for the administration of the fund under the Gratuity scheme.
Initial contribution based on actuarial advice.
Discuss investment preferences and strategies with the Insurance Broker and Insurance Company.
Contribute to the fund and review investment return and fund growth periodically.
Inform the insurance company at regular intervals whenever gratuity liability arises from employees.
FAQs on Group Gratuity Insurance
What is the minimum number of employees needed for a Group Gratuity Plan?
Typically, a minimum of 10 employees is required to set up a group gratuity plan.
How are the gratuity benefits calculated?
Gratuity is typically calculated as 15 days’ salary for each year of service, based on the employee’s last drawn salary.
Are there any tax benefits associated with Group Gratuity Insurance?
Yes, contributions made by the employer are tax-deductible, and the gratuity received by employees is tax-free up to certain limits under Section 10(10) of the Income Tax Act.
What investment options are available?
Employers can choose from unit-linked plans, which offer various equity and debt fund options, or traditional non-linked endowment plans.
Is life cover included in the Group Gratuity Plan?
Some plans offer bundled life insurance coverage, providing additional benefits in case of the employee’s death during the service period.
Can the plan be customized?
Yes, plans can often be tailored to meet the specific needs of the employer and the workforce, including options for premium payments and investment strategies.
How to set up a Gratuity Fund?
Ensure compliance with regulations, conduct an actuarial valuation, choose between self-managed or insurance-managed funds, decide on investment strategies, and handle the administrative setup.
Reward Dedication, Secure Futures
Fulfill gratuity obligations effortlessly with Group Gratuity Insurance from Go Insure India. This policy helps employers set aside funds for employee benefits upon retirement or resignation, ensuring financial security for employees while easing long-term liability for businesses. Strengthen loyalty and build a stable workforce.