What are different factors on which the premium of a workmen compensation is based on?
A workmen 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 Insurance Information Bureau (IIB) determines the premium of the workmen compensation policy. 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 one seeks coverage
- The type of business of the employer
Coverage under the policy in two Tables
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. Under Table B, the policy covers individuals who are not employed. Table A policies cover legal liabilities as defined in the Workmen’s Compensation Act, 1923, Fatal Accidents Act, 1855, and Common Law. On the other hand, Table B policies, cover liabilities as specified only under the Fatal Accidents Act, 1855 and Common Law. Since the coverage is different, the premium rates of workmen compensation policy also depend on the type of policy selected by the organisation.
Factors determining the premium rates
Besides the above-mentioned parameters, the premium of the actual workmen compensation policy is based on several factors. These include the following –
- Number of employees to be covered under the plan
- Location of the employees
- Whether one has coverage for occupational diseases or not
- Policy tenure
- Past claim experience
- Additional extensions taken by the employer under the policy, etc.
The IIB fixes a book rate 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
- The minimum premium is INR 30 for covering multiple risks under the policy
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. Hence, all relevant factors are considered for calculating the premium.
Why buy a Workmen compensation policy?
A workmen 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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