Employer Employee Insurance Scheme

An employer-employee insurance policy is one in which the firm or employer buys an insurance policy with its employees as the beneficiaries. It is a perk that an organisation provides to its employees. This type of insurance is currently the most relevant because it serves as a tool for retaining existing employees and attracting new ones. This insurance policy is also appropriate for promoter-owned businesses. This is because the promoter prefers to have his or her insurance costs covered by the company.

It’s very easy to mix up employer-employee insurance with keyman insurance. The two names, however, are not interchangeable. On the one hand, the employee-employer structure is utilised for any type of insurance plan, whereas keyman is just a term life insurance. In a keyman policy, the insurance benefit is given to the company upon death, and it is subject to income tax. In contrast, in an employer-employee policy, the benefits are provided to the employees and are tax-free.

Why Should You Choose an Employer-Employee Insurance Plan?

Employer-employee insurance is primarily used to promote employee morale and provide them with peace of mind. You may maximise your employees’ potential by showing them that you care about their well-being.
Employer-Employee Scheme – Eligibility

The eligibility for this insurance is as follows

  • Any business, whether it is a sole proprietorship or a partnership, with at least five employees is eligible to participate in the scheme.
  • Employees and employers must have a working connection since the employee is paid for the services he or she provides to the employer.
  • This insurance programme accepts all modalities and policies.
  • This insurance strategy can benefit even a corporation that is incurring losses.

Employer-Employee Scheme – Employer Benefits

The following are the advantages that an employer receives from this Insurance scheme:

Employee attrition is reduced as a result of this programme.

  • Employees feel more appreciated and secure as a result of this strategy, which strengthens their devotion to their employer.
  • Under section 37(1) of the IT Act, the employer is entitled to a tax exemption for the premiums it has paid for this scheme as business expenditures.
  • The tax exemption under section 37(1) may provide financial benefits to the organisation.


Employer-Employee Scheme – Employee Benefits

Employees’ morale is raised as a result of this insurance policy, which functions as an incentive programme.

  • Only the employees have access to the maturity proceeds.
  • Even if the employer pays the premium, the employee is entitled to an income tax exemption under Section 80C of the Income Tax Act.
  • Section 10D of the IT Act exempts the entire maturity process from taxation.
  • Employees can be covered by an insurance plan that protects them against accidents, illnesses, disability, and untimely death.
  • The death benefit is provided to the employee’s nominee in the event of death (whom the employee has nominated)


Employer-Employee Scheme – Benefit of Tax

The premium for the policy is paid by the employer in the employer-employee arrangement. The employer sends the insurance provider a completed and signed assignment form with the employee’s name on it. The usual proposal form is filled out by each employee. Employees can claim tax exemption under the IT Act since the premium that the employer pays is a requirement that is in their hands. The premium paid by the employer is deductible as a business expense, thus it qualifies for a tax credit.

Employer-Employee Scheme – Arrangement Types

There are two sorts of arrangements that can be made under the employer-employee system.

Type A: The employer is the proposer in this scheme, while the employee is the Life Assured.

Type B: The employee is both the proposer and the Life Assured in this type of agreement.

To Sum It Up!

The employer-employee insurance benefits both the employer and the employee in this way. This policy is particularly pertinent at this time because it helps an organisation recruit and retain people.