Employees of an organized sector have the opportunity to get life cover through a group employee deposit linked insurance. According to this scheme, the family member of the employee gets the sum insured in case the employee dies during the service period.
The amount of cover in group employee deposit linked insurance policy is determined on the basis of a formula and not decided by the individuals or the employees present in the group. The insurers calculate the Free cover limit for the scheme which is also known as the free cover level.
A free cover limit or FCL is the amount of cover that each employee in EDLI schemes gets without providing any medical evidence or underwriting. It is the automatic coverage provided to the insured member, and hence it does not require any personal health questionnaire or mandatory medical requirements to be fulfilled.
But if the medical expenses are above the free cover limit, then the acceptance of the cover is subjected to a medical evidence or an underwriting according to the group employee deposit linked insurance policy. The insurer may require information relating to the age and health declaration. Older members of the scheme may have to go through a more comprehensive underwriting process. Underwriting for older members will cover their full medical and financial condition.
Factors on which an FCL in Group EDLI Schemes depends on:
- Group size
- Average sum assured for the particular group scheme
Thus, when there are more members in the group, the free cover limit automatically increases. A free cover limit is the product of number of members in the group and the free cover for each employee in the group.
The amount of insurance which is more than the free cover limit is accepted by the insurers provided that the Employer company provides an evidence of insurability. This evidence has to be acceptable and has to be completed by adhering to all the underwriting process. The company also has to pay the full premium amount and accept the risk in writing. In absence of any underwriting process, the amount of insurance coverage that the insured gets is limited to the free cover limit amount.
Case Study:
A manufacturing company situated in Lucknow had taken a group employee deposit linked insurance policy. The company had total of 40 employees. According to the policy, the free cover for each employee was 40,000 rupees. Hence the free cover limit for the entire group EDLI policy was 16,00,000 rupees. (40*40,000)
One of the employee, Mr. Bhasin suffered from severe heart attack. He was rushed to the hospital. He was admitted in the intensive care unit immediately. After a day, Mr. Bhasin passed away. The total medical expense was 35,000 rupees.
The family members of Mr. Bhasin contacted his employer. The employer contacted the insurance policy company. Wife of Mr.Bhasin was the legal nominee in this case. She filled the required documents for the claim process to get started. The attested copy of the death certificate was submitted to the insurers. The insurance company began the required investigation for this group EDLI scheme purchased by the manufacturing company. Following was the outcome for the insurers.
- They found that Mr. Bhasin had no previous history of heart related condition.
- They also found that Mr. Bhasin suffered the heart attack during his active service period.
- Bhasin was the permanent employee of the manufacturing company.
- Bhasin was below the normal retirement age requirements according to the policy.
- The policy cover was compulsory for all the eligible 40 employees of the manufacturing firm.
As the expenses of Mr. Bhasin during his hospitalization period were less than the free cover limit for the policy, his wife was not required to produce any further medical underwriting documents. She could claim the insurance amount successfully.
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