What are the various expenses applicable in a Group Superannuation plan and how do they apply?

There are various expenses or charges levied on a group superannuation plan, which need to be paid. Have a look at some of the expenses/charges applicable in the plan –

1. Fund Management Charges – These are those charges which are deducted from the policy account at the end of each quarter or at the time of exit. Here, it is important to note; these charges vary as per the size of the group superannuation insurance policy. For instance, some group superannuation insurance policies charge 0.50% as fund management for Rs 1 crore coverage.
2. Market Value Adjustment – It will be levied on the bulk exit and the complete surrender of the group superannuation insurance policy. It will be applicable on the withdrawal amount during a policy tenure, which can be over and above the group superannuation insurance policy account value.
3. Policy Administration Charges – It is charged by the group superannuation insurance company towards maintaining the policy. It means, the cost incurred towards paperwork, premium intimation and so on shall be covered under the policy.
4. Surrender Charges – If a member leaves the group superannuation insurance scheme during the first three years other than reasons like death, disability, etc.; a certain percentage of surrender charges will be levied. However, most of the group superannuation insurance companies do not charge surrender charges if a member leaves the group after a fixed number of years, like three
5. Service Tax Charges – Service tax if any, shall be borne by the master policyholder and it may vary with the time and government regulations.
6. Switching Charges – In case the member decides to switch from one fund to another, a certain percentage of the fund will be charged as switching charges. Note, most of the insurers offer a limited number of free switches in a year.

Read More: Types of Group Insurance Policies available in India

Here it is important to note, the above charges are for indicative purposes only, and for more information, it is strongly advised to read your group superannuation insurance policy document carefully.

Case: 1

L.S Engineering had purchased a group superannuation insurance policy from Insurer X. The coverage available under the policy was Rs 50 lakh. It means, in this case, the group superannuation insurance company would levy policy administration charges as Rs, i.e., 0.50 % of the coverage. It comes to Rs 2500.

Along with this, the insurer also levied policy administration charges for managing the group superannuation insurance scheme of L.S Engineering. The insurance policy document has defined policy administration charges as Rs 11 per member, which will increase every year for a maximum of 5% per annum. In this case, L.S Engineering had 100 employees, and therefore, the policy administration charges came as Rs 1100 (100×11).

L.S Engineering premium amount included both fund management and policy administration charges. Here, the premium charges included service tax as well.

Read More: What are the advantages of Group Term Life Insurance policies?

Case: 2

Though R.M Automobile had purchased a group superannuation insurance scheme after a detailed review; it was not happy with the services provided by the insurer. Therefore, the company decided to surrender its existing group superannuation insurance policy and purchased the other group superannuation insurance scheme from a new insurance company.

Here, R.M Automobile decided to cancel the group superannuation insurance policy after one year. In this case, the insurance company levied surrender charges as 5% of the fund value.

Here the fund value was 50 lakh, and the insurer levied 5% charges as surrender charges. It means Rs 25,000 was charged as surrender charges.

Though R.M Automobile surrendered the policy; it had to pay fund management charges along with policy administration charges and service charges as well for the one year during which the policy was active.