Introduction to Employer Employee Insurance
In today’s competitive corporate environment, companies that care for their workforce are often the ones that succeed. Employer Employee Insurance is one such commitment that reflects a company’s responsibility toward the health and financial stability of its employees. This form of insurance provides coverage to employees while offering tax-saving and financial planning benefits to employers.
In this blog, we’ll dive deep into the concept of employer employee insurance, why it matters, how it works, and how both employers and employees benefit from this mutual arrangement.
What is Employer Employee Insurance?
Employer Employee Insurance is a life insurance policy that an employer purchases for the benefit of an employee. The policy is typically owned and paid for by the employer, and the employee is either the insured or the beneficiary, depending on the structure. These policies are commonly taken for key personnel, senior management, or employees who are valuable assets to the organization.
It is a non-participating arrangement—meaning the employee has no ownership or contribution toward the policy premium—but enjoys the benefits.
Why is Employer Employee Insurance Important?
This insurance isn’t just a perk—it’s a strategic move for businesses. Here are a few key reasons why it matters:
Employee Retention and Loyalty: Offering life insurance as part of the compensation package increases loyalty and reduces attrition.
Tax Benefits: Employers can avail of tax deductions under Section 37(1) of the Income Tax Act (India) for premiums paid, and maturity proceeds can be tax-free under Section 10(10D).
Business Continuity: In the event of an untimely death of a key employee, the policy provides financial assistance to the company.
Financial Planning: It’s also used as a deferred benefit or retirement benefit for employees.
Key Features of Employer Employee Insurance
Owned by Employer: The employer is the policyholder and pays the premium.
Employee is the Insured: The life of the employee is covered under the policy.
Customizable Benefits: Policies can be customized based on the employee’s designation, tenure, or contribution.
Exit Options: The policy can be transferred to the employee upon retirement or resignation, depending on the agreement.
Types of Employer Employee Insurance Policies
Employers can choose from various types of policies, depending on their goals:
1. Term Insurance
Pure protection plans that offer high coverage at a low premium. Ideal for temporary coverage during the employee’s tenure.
2. Endowment Plans
These offer both life cover and savings, helping companies build a corpus while offering life protection.
3. ULIPs (Unit Linked Insurance Plans)
These combine life cover with investment in equity or debt funds and are suitable for long-term planning.
4. Whole Life Policies
These policies provide lifetime coverage and can be used as retirement benefits by assigning the policy to the employee later.
How Does Employer Employee Insurance Work?
Let’s understand the workflow in simple terms:
Selection of Employee: The employer identifies the employee(s) for whom the policy is to be taken.
Policy Purchase: The employer buys a life insurance policy on the life of the employee.
Premium Payment: The employer pays the premium and claims it as a business expense.
Nomination: The employer can nominate itself as the beneficiary or allow the employee to choose a nominee.
Exit/Transfer: On resignation or retirement, the policy can be transferred to the employee, who continues it on their own.
Employer Employee Insurance vs Group Insurance
Parameter | Employer Employee Insurance | Group Insurance |
Ownership | Owned by employer | Group policy by insurer |
Customization | Tailored for individuals | Same benefits for all |
Tax Benefits | Yes (for both) | Limited tax benefits |
Coverage | Higher and specific | Basic and uniform |
Continuity Post Exit | Can be transferred to employee | Usually discontinued after exit |
Benefits to Employers
Attracts Top Talent: A strong insurance policy shows the company cares for its people.
Risk Management: Protects the business from financial loss due to the loss of a key person.
Deferred Compensation: Policies can be structured as long-term incentives.
Tax Savings: Premiums paid are deductible as business expenses.
Benefits to Employees
Life Coverage: Peace of mind with life protection for their family.
Financial Security: Builds long-term financial strength.
Future Asset: If transferred, the policy can become a personal investment.
No Cost: Employees are not required to pay premiums.
Ideal Candidates for Employer Employee Insurance
Founders and Partners
CXOs and Directors
Senior Sales Executives
Technology Leads or Key Innovators
Employees Critical to Client Relationships
Documentation Required
PAN and ID Proof of Employer & Employee
Income Proof of Employee
Business Registration Documents
Proposal Form and Declarations
Insurers may also require a medical examination based on the sum assured and employee age.
Real-Life Use Case
Let’s say a tech company takes a ₹50 lakh endowment policy for its senior developer. The premium is paid by the company. After 10 years, when the developer retires, the company assigns the policy to the employee. He now receives maturity benefits tax-free, ensuring both employer branding and employee satisfaction.
Points to Consider Before Opting
Check for exit clauses and transfer policies.
Understand tax implications for both employer and employee.
Choose the right sum assured and policy duration.
Consult with a financial advisor or insurance expert before structuring the plan.
Conclusion: A Win-Win Insurance Strategy
Employer Employee Insurance is more than just a benefit—it’s a strategic investment. For businesses, it reduces risk, optimizes tax planning, and boosts employee morale. For employees, it offers security, financial strength, and long-term rewards.
If you’re an organization that values its team and plans for the future, employer employee insurance is a must-have in your financial toolkit.
