Employees in the organised sector could get free insurance cover of up to Rs 6.5 lakh from next financial year under a scheme run by the government’s retirement funds manager.
The Employees’ Provident Fund Organisation (EPFO) will consider raising the cover under its deposit-linked insurance scheme to 100 times the basic salary in a review early next year.
Currently, the scheme offers free life insurance of 20 times an employee’s basic pay with a ceiling of Rs 6,500.
“After a review we can make the amount much higher,” said Central Public Fund commissioner Samirendra Chatterjee.
“There is a possibility that we could increase it to 100 times the basic pay instead of 20 times allowed at present,” he said.
Similar schemes offered by the country’s insurance firms could cost more than Rs 2,000 a month for a 30 year old. Unlike such plans, this one comes without the hassles such as medical check-ups and periodic premium payments.
Employers contribute 0.5% of basic pay of an employee as insurance premium to the scheme every month. The scheme was made more lucrative recently offering a higher benefit in the event of the subscriber’s death. Under the earlier scheme, the insurance benefit was linked to the provident fund deposit of an employee.
An EPFO study revealed that in the last four years, the number of claims has been constant at about 20,500 per year.
The amount of claim paid out was around Rs 50 crore, whereas the government was collecting about Rs 368 crore per year as premium and about Rs 600 crore as interest.
Under the reworked benefits wherein the insurance is pegged at 20 times the basic salary, the claims are expected to increase to Rs 168 crore.
Even at this higher level of claims, the scheme can pay out five times more from around Rs 1,000 crore annual inflows. This means, EPFO could offer cover up to 100 times the basic salary.
“We have to look at the numbers first,” Mr Chatterjee said.
“We were not satisfied with the scheme because people keep taking money out of their PF and many were thus not actually eligible for much insurance,” he said.
Most employees just had Rs 10,000 to Rs 15,000 in their provident fund (PF) accounts, although the average was a higher Rs 25,000 due to high deposits of a handful of employees. This meant most employees were not be eligible for more than Rs 10,000-. 15,000 insurance benefit.
The fund decided to give the scheme a facelift and in September the central board of trustees agreed to delink the insurance benefit from PF deposits and instead make it 20 times an employee’s basic pay. This means an employee with a basic pay of Rs 6,500 or more will be insured for Rs 1,30,000. Under the current dispensation, even an employee with a basic salary of Rs 3,000 is eligible for an insurance of Rs 60,000.
Source:Economic times
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