Employer-Employee Insurance

The success of a company solely depends on the individual talents of employees, whose skill, integrity and other capabilities are essential for the future progress of the company. Exit of an employee due to resignation will result in immediate financial loss to company, as the Employer has to spend considerable amount of time and money to recruit and train the new employee and moreover upon exit of an employee, the employer may loose some of the trade secrets. 

The company, on behalf of the lives of Employees purchases Life Insurance, which will provide money to their family members in event of their premature death and also makes provision for their old age. These additional benefits will act as sufficient inducement to continue with the present Employer. Moreover, Employee is entitled to claim tax rebate u/s 80C for the premiums paid by the employer. Maturity proceeds are tax free u/s 10(10D) in the hands of employee.

 Premiums paid by company will qualify as eligible business expenses under Sec.37 (1) of the IT Act. Premiums paid by the company are treated as perquisite in the hands of the Employee under Sec.17 (2) (V) of the Income Tax Act.. 

Any Company, Partnership Firm or Even Proprietary Concern Is Eligible for Taking

Insurance for Their Employees under Employer-employee Relationship. Employer has to conditionally assign the policy in favour of Employee immediately on receipt of policy.

Shareholding of the employee should be less than 51% and family holding (i.e. his/her

spouse and minor children) should be less than 71% in the employer company. (Ref:

CO/U & R / CJP/11-12/104 dated 06/08/2011.

Cost of Appointing New Employee: 25% to 50% of Salary.

What if you could make an MOU with your employee to work for 5 years, and take LIC policy for premium of 10% of salary. Policy will be conditionally assigned to employee with the condition that if he works for 5 years then only he will get the benefits under the policy. Moreover this money can benefit from tax exemptions.

Realistically, as an employee, If you work for the time period of the policy assigned & more, you will get an additional amount worth 100% of your salary. These maturity benefits are exempt from Taxation.

Both Employer and employee have an insurable interest in each other. An employer may want to make provision as a welfare measure through Life Insurance to his employees. The employer may want to use the Life Insurance Policy as an incentive for the employees to continue his services with him.