GROUP SAVINGS- LINKED INSURANCE SCHEMES Where life insurance benefit is not linked with any statutory requirement,

there is often a demand to link it with survival benefit, particularly when the employees come forward to make the contributions. The people working in the metropolitan cities, occupied as they are in their day today activities where inflation is inevitable, find difficult to provide adequate security for their families, Individual insurance with high premium in fact does not provide adequate insurance protection. Their need for insurance protection during service coupled with adequate savings for carefree retired life remains unfulfilled. Keeping this in mind, LIC has come out with an attractive insurance scheme viz. Group Savings Linked Insurance scheme at a very low cost. Central Government has a similar scheme with minor modifications. Semi-Government Organisations, Public Sector Organisations and also large private business houses and industrial enterprises have introduced this scheme. The details of Group Savings Linked Insurance Scheme are briefly indicated below: Objectives of the Scheme:

Protection without individual evidence of health. Attractive returns on savings to meet post retirement needs.

Introduction of the Scheme: The contributions under this scheme are deducted from the monthly salary of the members. This scheme is allowed only to selected Employer-Employee groups such as

Quasi-government bodies Public sector corporations Reputed public sector firms Reputed private sector companies which maintain accurate records and files of their employees

Under the Group Savings Linked Insurance Scheme, a portion of the insurance cover is utilised for the cover provided for insurance and the balance, based on the contribution of savings, is accumulated until the exit of the policy at a highly attractive rate of interest. The present rate is 11 percent per annum. The amount allocated from the monthly contributions towards insurance premium is determined on these factors

Nature of the group Occupation of the group Age Composition of members, etc

This average premium will be reviewed and re-determined at the end of every 3 years. The savings contribution is reimbursed with interest at the time of retirement or exiting of the policy in any other mode. In case of death during the service period of the employee, the amount for which the member was covered at the time of the unplanned contingency is paid along with the accumulated savings.

How the Plan Operates: The scheme is available to employees in the 18-60 age groups. However, there is a condition on a minimum number of employees enrolling in such a plan. For instance, in the case of LIC, if up to 500 employees are found to be eligible for the plan on the date of its commencement, a minimum participation of 75 per cent of the eligible staff is needed. Premiums to be paid per month are Rs 100 per Rs 1 lakh sum assured. Out of this, a part is set aside to provide for risk cover and the remaining invested to provide benefits to the employee either at the end of the plan's term or on retirement. The amount set aside for savings is invested in risk-free instruments such as government securities. The portion that is allocated for risk cover is a function of three parameters: The risk profile of the group; the age of the members to be covered under the plan (higher the average age of the members, higher the amount set aside for life cover), and the coverage amount (also known as sum at risk). To illustrate, under LIC's plan, the sum assured is a function of the number of employees who enrol as well as the category that the employees belong to (senior management, middle management, clerical staff or workers). If an organisation wants to take a quantum of cover for its employees that the insurance company reckons is on the higher side, members who are proposed to be part of the plan may have to undergo a medical test. Contributions to the plan can either be made by the employer or by both the employer and the employee. Usually, the employer contributes the risk premium; the employee pays that part of the premium component that is utilised for savings. Contributions made by the employer can be treated as part of business expenses. If the employee chips in with a portion of the premiums, he is entitled to income-tax rebate under Section 80 (c).

To enhance the payout to the employee, riders can also be attached. In the case of LIC's plan, for the payment of an additional premium (Rs 0.75 per thousand sum assured), an accident cover equal to the basic sum assured can be taken. Should the employee die in an accident, the sum assured under the rider is paid out. This is over and above the payouts of the base sum assured, and the savings with the accumulated interest. Policy Parameters: No of eligible employees on Minimum participation required date of commencement of Scheme Upto 500 75% of eligible employees 501 - 2500 70% but not less than 375 2501-10000 65% but not less than 1750 10000 & above 60% but not less than 6500 For the new entrants to the Company, the membership of the Scheme is compulsory. The following insurance cover is granted on a graded pattern according to categories of employees classified on the basis of designation and pay scales: Category Group A Group B Group C Group D Insurance Cover to Total Monthly be provided (Rs.) Contribution Payable (Rs.) 100000 100 75000 75 50000 50 25000 25

In view of somewhat larger cover available to the higher categories of employees, the composition of the group should conform to a pattern wherein 5 to 10% employees belong to Class I (Group A), 10 to 15% employees belong to Class II (Group B), and 75 to 80% employees belong to Class III and IV combined. In order to maintain a balance between the premium for life cover and contributions going in for savings, the Corporation has stipulated that they should be in the ratio 1:2. Where required suitable adjustments will be made in the rate of contribution or the amount of life cover. The maximum limit of insurance cover available to them is as below: Category of employees Group Size Maximum limit of Cover available 25-99 100-499 280000 225000 140000 70000 500-1999 400000 280000 200000 90000 2000&above 450000 315000 225000 100000 100-499

Sr. Management 200000 (Group A) Middle 140000 Management (Group B) Clerical Staff 90000 (Group C) Workers 45000 (Group D)

For Group Size 15-24 uniform cover upto maximum Rs.30, 000 will be allowed. Minimum term assurance premium will be Rs.5% per month.