How expensive is the workmen compensation policy?
A workmen’s compensation policy covers the legal liability faced by the employer if the employee is injured during employment. The policy covers death, disablements and injuries suffered by employees as a result of their employment. The premium of the workmen’s compensation policy is determined by the Insurance Information Bureau (IIB). IIB calculates premiums on the basis of three important parameters which are as follows –
- The average salary payable to the employees
- The occupation of the employees against which cover is sought
- The type of business of the employer
Moreover, a workmen’s compensation policy comes in two variants. One is the Table A policy which covers all employees of the business whether they are workmen or not. The other is Table B policy wherein individuals who are not workmen are covered. Table A policies cover legal liabilities as defined in the Workmen’s Compensation Act, 1923, Fatal Accidents Act, 1855 and Common Law. Table B policies, on the other hand, cover liabilities as specified only under the Fatal Accidents Act, 1855 and Common Law. Since the coverage is different, the premium rates also depend on the type of policy selected by the organisation.
To calculate the premium of the actual workmen’s compensation policy, besides the above-mentioned parameters, other factors are also considered. These include the following –
- Number of employees who would be covered under the plan
- Location of the employees
- Whether coverage for occupational diseases is being taken or not
- Policy tenure
- Past claim experience
- Additional extensions taken by the employer under the policy, etc.
A book rate is fixed by the IIB from time to time for different types of occupations. This rate is the minimum premium for each type of occupation. Moreover, as determined by the IIB, the minimum premium rates for different types of occupations are as follows –
- For household servants, the minimum premium should be INR 10 and for other occupations it should be INR 20
- If multiple risks are covered under the policy, the minimum premium should be INR 30
Average premium, depending on the occupation and the risk associated with it, ranges from INR 10 to INR 170 per INR 1000 sum insured. After considering all the factors and the tariff specified by the IIB the total premium of a workmen’s compensation policy ranges between 0.1% and 1% of the total annual wages paid to employees.
The insurance company fixes the premiums independently for each type of organisation. The premium rates are not uniform since the organisations differ in respect of the number of employees, their wages, the risks of occupation, etc. That is why premium calculation is done on an independent basis after considering all relevant factors.
A workmen’s compensation policy is not expensive as the maximum premium comes to about 1% of the annual wages. However, the coverage that the policy provides is considerable. That is why despite being mandatory a workmen’s compensation policy also proves fruitful for the organisation in covering its liabilities.
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