Group Gratuity Insurance Plan

Group gratuity insurance plan helps an employer to meet their statutory liability towards gratuity. As per the Payments of the Gratuity Act, an employer is liable to pay a lumpsum for every year of service rendered by the employee. A gratuity plan helps cover this liability by managing a provision fund and insuring the death of an employee. A regular payment towards the gratuity provision fund enables better fund management and also attracts tax benefits.

An employer chooses to invest a certain amount of money to be able to meet the organization’s gratuity liability. This amount is then invested in a range of equity and debt funds to provide returns over a long period of time. The lump sum amount created in this process is then used to pay gratuity claims for employees who exit the organization.

Below are a few services that are part of the group gratuity policy:

To the employee-

• Death Benefits are payable only if the policy is in force
• Maturity benefits are payable on retirement or resignation of an employee

To the employer-

• Loyalty additions based on fund value are possible in case the policy is in force
• Tax benefits get accrued on regular annual contribution made towards the gratuity provident fund

Below are the eligibility criteria for obtaining a group gratuity insurance for employee benefit:

• Fund Management Charge: This is the charge applicable as a percentage of the value of assets. Fund Management Charge is calculated as percent per annum on the Fund Value. The rate of this charge may increase but usually remains below 1.5% of the total fund per annum.
• Premium Allocation Charge: These charges are levied to offset the insurance companies spend on distributor fee, underwriting expenses as well as medical expenses of the policy.
• Policy Administration Charge: These charges are deducted as administrative charges incurred by the insurance company for maintenance of the policy.
• Mortality Charge: This charge is levied as a charge for the insurance protection on death before the end of the assumed life expectancy of the insured.
• Surrender/Termination Charge: This is a charge deducted for pre-mature encashment of the group gratuity policy either partially or fully.

The first step in putting together a group gratuity plan is to get an actuarial valuation of accumulated liabilities. The second step is to identify a suitable insurer who will manage the plan. Insurers can be selected based upon the past returns generated by the gratuity fund. The third step is to set up a trust and put the gratuity plan in place.

There is no minimum eligibility period for gratuity payment in case of death or disablement. As per the Gratuity Act, gratuity is payable to the nominee of an employee irrespective of the completion of 5 years of service in case of death of an employee. In case of death of an employee, the gratuity is calculated based on the tenure of service of the employee. However, the amount can be maximum ₹20 lakhs. Along with the gratuity fund, the nominee also receives other dues such as salary benefits, statutory bonuses, etc. in case of death of an employee on service.

Future Service Gratuity plan works as an insurance. They resemble a life insurance plan wherein death benefits are provided to the nominee. Employees covered under such a group gratuity policy taken by a company are eligible for gratuity payment till retirement. This essentially means that, the gratuity benefit received by the nominee will be calculated for a future period, till the retirement age of the employee (if they had survived).