The role of employee benefit insurance schemes in SMEs

Published in Economic Times on 25 May, 2015, Written by Kapil Mehta

Small companies should start looking at group insurance schemes for their employees owing to the extra benefits that accumulate over and above the features available against an individually bought insurance scheme.

What are Employee Benefit Insurances?

Large companies routinely use medical and life insurance as tools to attract and retain employees. These insurances offer features that individual insurances just cannot match. For example, group medical insurance waives off exclusion of pre-existing diseases and does not require an employee to undergo medical tests. Such features are not available to an employee buying insurance on their own.

Can SMEs buy employee benefit insurances?

SMEs are eligible for employee benefit insurances. In most cases, SMEs are unaware of these insurances or believe that they are not eligible. This used to be the case a few years ago when group covers required a minimum size of a 100 employees. However, over the past few years several insurers allow groups as small as five people. In fact, some insurers prefer small groups because they tend to be stable and insurers do not get switched each year on renewal.

What features of the insurance are most relevant for SMEs?

In group medical insurance the three most important features are waiver of pre-existing disease exclusion, waiver of waiting periods for certain diseases and cover for maternity with immediate effect. These features can be modified. For example if maternity cover is not included then premium rates are lower. This kind of a customization is not possible in individual health insurance. The cost of this insurance is about Rupees 3, 000 for Rs 2 lakhs of sum assured per person.

In a group personal accident insurance policy, the important features to buy, in addition to the basic accidental death cover, are insurance for total and partial disabilities and medical expenses. Consider the case of an employee who fractures his arm in the office. This cost will not be covered by medical insurance because no hospitalization is required. However, if the SME has a personal accident cover then medical expenses for setting the fracture and cast will be covered. The cost of this insurance is about Rs 100 for Re 1 lakh of cover.

In group term life, a benefit will be paid to the employee’s family if the employee dies for any reason. In small companies promoters have a moral responsibility to take care of their employee’s families. Group term life is one way of discharging this responsibility. The two important features here are the sum assured selected and free cover limit. The Sum assured is often one or two times an employee’s annual salary. The free cover limit refers to the sum assured under which no medical tests are needed. This can be as high as Rs 1 crore. In individual term covers, there is no free cover limit and medical tests are largely mandatory. There will be several cases where an employee suffers from diseases such as diabetes or hypertension. Although, they would have been refused individual insurance, the group insurance will cover them without medical tests or declarations. The cost of this insurance is Rs 400.00 for Re 1 lakh of cover.

In summary, SMEs and even mid-sized companies should actively evaluate group medical, personal accident and term insurances. These provide a cost-effective way of delivering valuable employee benefits.

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