The employer can choose different benefit calculations to determine the amount of coverage for the employees. For group insurance contract, employees are assigned to different classes and schedule of benefits are attached to different classes that determine the amount of coverage that will be provided to the employee of each class.
Here are the various types of benefits schedule that are generally used:
- Earnings Schedule: In this method, employees are distributed to different classes based on their salaries (excluding the bonus). It is the most commonly used method to determine the coverage for group life insurance policy. The amount is determined by percentage or the multiple of annual salary which is, most of the times, equal to the one time of annual income. Higher multiples can be provided to the executive class.
- Flat Benefit Schedule: In this method, no importance is given to the position and the salary of the employee. All the staff are considered equal and are grouped under one class so that all of them receive the same benefits.
- The Length of Service Schedule: Very few companies use this schedule to determine group insurance benefits. In this category, benefits were calculated by grouping the employees based on the number of years’ employee has been working with the company.
- Combination Schedule: A mix of two of the schedule can also be used by the firm. The earning-schedule can be used to determine the benefits of the most valuable employees of the company whereas for the employees working on an hourly basis, the flat benefit method can be employed.
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Case on Group Life Cover Decision
ABS Pvt. Ltd. is manufacturing industry, where there are two types of employees. One is the those who work in the factory and such workers are on the hourly payroll who are paid based on the number of hours worked in a month. The other staff takes care of the all the marketing, accounting, sales, research, and other operations of the company. These are the full-time employees of the company who are paid fixed salaries and incentives.
The management of ABS Pvt. Ltd. is planning to buy a suitable group life insurance cover for all their employees irrespective of being full time or not. So, to determine how much coverage they should buy, they divided their employees into two groups, i.e. the permanent employees (that includes those who are responsible for operations) and the temporary employees (those who are responsible for the working in the factory).
For permanent employees, they divided them into further three classes, i.e. senior, middle level, and entry level based upon their position in the company. They assigned multiplier one to the entry class, two to the middle level and three to the senior class. By applying this multiplier to their average salary in each class the coverage was determined.
Whereas in the case of temporary employees, flat rate basis was used and the same benefit was given to the employees of the whole group irrespective of the number of hours worked by them.
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