It is quite common for an employee’s cost-to-company (CTC) to include the insurance premium paid by the employer. This insurance premium could be for several group policies, including group health insurance, group term life, and group personal accident.
Differentiated insurance benefits based on Group grades
A large number of employees do not pay close attention to the details of these benefits. Sometimes hidden in this headline are the eligibility rules of insurance. Many companies offer differentiated insurance benefits for employees based on pre-set eligibility criteria :
- Unless the employees familiarize themselves with the rules, it is difficult to verify if the eligibility criteria have been correctly applied. Also, it is important to know when the employee would become eligible for a higher cover and the relevant qualification criteria. Here are some common types of grading criteria prevalent in the market.
- A common way to differentiate insurance benefits is on the basis of designation. This criterion is used for health, life and accident insurance. Here, the sum assured (SA) could be differentiated based on the designation level. Typically, organizations would categorize all designations into three or four groups. For each category, a separate SA may be decided.
For example, all employees at the field level may be given a health insurance SA of Rs 2 lakh. The starting supervisory level may be given an SA of Rs 3 lakh, the middle management an SA of Rs 5 lakh, and so on. Sometimes the benefits can be nuanced based on designation. For example, within health insurance, the room rent eligibility for field-level staff may be 1 percent of SA, whereas for senior management there may not be any room rent limits.
Also read: What are the advantages and disadvantages of a Group-based indemnity policy?
The salary link to group life insurance policies and accident covers
For accident and life insurance, SA is typically allocated to each designation. At instance, field-level staff may be assigned an SA of Rs 10 lakh, while senior management may be assigned an SA of Rs 1 crore. For accident and life insurance, insurers may mandate that the assigned SA should not exceed 10 times a person’s CTC.
Linking the SA to a person’s CTC is most common for life and Group personal accident insurance policies Companies typically fix a certain multiple between 1 and 10 times the salary. The SA then is directly proportionate to the individual salary. The important thing is for the company to update the salary and SA with the insurer whenever there is a change, especially at the time of appraisals.
Typically, employees have less visibility into the accident and life insurance policy, as it is not regularly utilized. However, the employee must ensure to check with the HR department that the SA is updated whenever a salary change occurs; otherwise, their nominee(s) may find it difficult to advocate for the correct SA when the need arises.
Another variant of the salary-linked SA is to limit the SA to certain pay bands. Herein, instead of linking the SA to actual salary, the company may choose to classify all employees into a pay band and assign a median SA to all those who fall in that pay band.
For example
Employees with salary up to Rs 10 lakh could be classified as pay band 1. Employees with salary between Rs 10 lakh and Rs 20 lakh could be pay band 2, and so on. The company may choose a median pay of Rs 6 lakh for pay band 1 and Rs 15 lakh for pay band 2.
All employees within pay band 1 will then get an assured SA, based on the salary multiple of Rs 6 lakh. In such cases, the number of revisions required by the company would be lesser. Also, the company would then not need to disclose the actual salary of each employee to the insurer.
Higher life and accident covers for larger families under Group Insurance Policies
A third option to differentiate benefits could be based on family size. Health insurance commonly utilizes this approach more than accident and life insurance.
Companies may choose to provide a higher SA to employees with larger family size. For example, the SA for an unmarried employee could be Rs 2 lakh. While a married employee without children might receive Rs 3 lakh. A married employee with one child could receive Rs 4 lakh.
The rationale here is that the larger the family size, the more the health-care need. This also takes care of the life stage of the employee, and to some extent the age. Employees who are married with children generally have a higher average age than unmarried employees.
At an older age, the propensity to fall ill is higher and that’s why a higher SA is justified. Though rare, in a few cases, employers may use a combination of the above criteria to segment the benefits. For example, while the SA in group personal accident and group term life insurance could be a multiple of the salary, determining the multiple itself could be based on the family size or designation of the employee.
For unmarried or field-level employees, the multiple could be 2, whereas for married or supervisor-level staff, the multiple could be 3, and so on. In such a method, one can consider the SA distribution to be more equitable. These are determined based on the person’s need, yet with a common basis across all employees.
Keep your current designation, family status updated
However, the drawback of such a method is that it is administrative-intensive. HR and employees would always need to keep the designation or family status updated. Any change in this, along with the salary, requires updating with the insurer.
Other than the criteria for grade-wise changes, it is important for the employee to understand the basis of calculation of the SA. For example, if the SA is based on salary multiple, it is important to understand the various components of salary that companies consider. Companies actively consider the full CTC, including variable salary.
Some employers may only consider the fixed salary, while others may consider only the basic salary component of the fixed salary. Employees should also know the conditions put forward by the insurer for the employee to become eligible for full SA.
In group life insurance, insurers require the employee to go through a medical examination where SA crosses a particular threshold. If the employee does not fulfill this requirement, then the SA is not fully approved. The insurance amount included in CTC letters is steadily increasing.
About The Author
Himanshi
MBA Insurance Management
With over 8 years of dedicated experience in the insurance industry, Himanshi has established herself as a leading expert in group insurance. As a prolific writer for SecureNow, she produces informative and engaging blogs and articles that shed light on the intricacies of group insurance, helping businesses and individuals make informed decisions about their coverage options. Throughout their career, Himanshi has developed a deep understanding of various aspects of group insurance, including employee benefits, policy selection, and risk management. Their expertise allows them to translate complex insurance concepts into clear, actionable insights, making their content an essential resource for readers looking to navigate the world.
