All you need to know about ULIPs in India?

Unit Linked Insurance Plans or ULIP, as it is popularly known is a unique financial product which was introduced in the insurance industry as a major improvement over its traditional endowment policies. ULIP was first introduced by UTI (Unit Trust of India), Mutual Fund. Later, in 2005 when the Insurance Regulatory and Development Authority of India (IRDAI) laid down guidelines for ULIP, many insurance companies forayed into ULIP business. In this article, let’s learn about ULIPs in detail.

What is ULIP?

ULIP is an integrated financial product that offers the best of both the worlds – insurance and investment. Basically, ULIP or Unit Linked Insurance Plan is a hybrid product offered by insurance companies that provides the dual benefit of protection and capital appreciation. Being a market-linked investment product, ULIP gives its investors opportunities to earn from capital market. ULIP is structured differently when compared to other insurance products offered by the insurance providers. Let’s understand how ULIPs are structured and how do they work.

How does a ULIP Plan work?

ULIP or Unit Linked Insurance Plan is market-linked. It is structured to provide the benefit of both risk cover and wealth creation by earning a return on market investment. When you invest in ULIP, an insurance plan, you will make premium payment as specified by the product or plan. The amount invested in the form of the premium is adjusted for the relevant charges, which are stated beforehand. After this, a part of the net premium will be put aside for providing life cover (which is also deducted as mortality charges) and the other part will be invested in the capital market through funds comprising of equity, debt and money market instruments in varying proportion. Depending upon the plan variants and fund choices made available by the ULIP plan, you can make your investments keeping in mind your risk profile. Every fund will have a risk rating. ULIP plans come with a lock-in period of 5 years.

When it comes to ‘investment’ part ULIP pools investors (policyholders) money and invest them into funds chosen by them. The total corpus of the funds is divided into units and the units will be allocated to each policyholder in the proportion of an invested amount. Depending on the funds market performance, it’s a per-unit value (net asset value) will increase or decrease.

On maturity of the ULIP plan, the investor will receive the fund value on the date of maturity. The fund value is the total value of all the fund units across all the investment funds opted in the policy. In case, investor dies during the policy period, then the nominee designated in the policy or the beneficiary of the policy will get the higher of the following amount:

  • Fund value on the date of demise
  • Sum assured (pre-agreed)
  • 105% of total premiums paid till the date of demise

There is also a class of ULIPs that offer both fund value + sum assured as a death benefit.

For example, let’s say Mr Arun has taken ULIP plan for 15 years with INR 5 lakhs sum assured and he is been paying INR 50,000 every year. In this case, let’s say unfortunately Arun dies in the 6th year of the policy. He has paid 50,000X 6 = INR 3, 50,000 premium amount. Let’s assume fund value on the date of his demise is INR 4, 20,000. His nominee would receive INR 5, 00,000 (sum assured) which is higher of all. In case the ULIP had offered a double death benefit, then the nominee would receive INR. 4, 20,000 + INR 5, 00,000 = INR 9, 20,000 as death benefit.

Who can invest in ULIP Plan?

Though ULIP offers flexibility to the investor, it is primarily a long-term investment product. ULIPs do not come with a high-risk cover. ULIP is ideal for investors of any risk profile and also Individuals seeking additional insurance cover along with market investment opportunities. ULIP invests in the capital market and the degree of risk may depend on the fund chosen by the investor. However, the investor has convenience and flexibility to choose based on the risk profile and on the basis of specific financial goals. ULIP investments are ideal for any investor irrespective of the risk-taking ability starting from conservative to aggressive risk profile. ULIPs are suitable for investors with any medium and long-term financial goals such as retirement, higher education or dream vacation etc. In short, ULIP plans are suitable for:

  • Investors having medium-term and long-term horizons for investment
  • Investors of any risk profile
  • Investors of all age across all life stage
  • Investors seeking risk cover along with an investment
  • Investors who would like to monitor their investments closely.

What are the Benefits of Unit Linked Insurance Plans?

Let’s explore the various benefits of ULIP plans. Following are some of them:

  1. Transparency:

    ULIP offers transparency to its investors relating to charge structure, expected rate of return and fund choices for investment etc. All the information are included in the fine prints of the policy which can be understood beforehand before signing on the dotted lines. Clarity and transparency give the confidence to investors that their hard-earned money invested in an ideal way. Timely reports shared by the insurance company to the investors regarding their investment gives an update on the current status of the investment.

  2. Flexibility:

    ULIPs come with many fund options with varying degree of risk. Investors are given the flexibility to choose an appropriate fund for investment based on their risk profile, goal and need. Investors are also allowed to switch from one fund option to another depending on the change in need and market situation. There is also a flexibility to increase the amount of investment via top-ups.

  3. Liquidity:

    After the initial five years, ULIPs gives liquidity by allowing investors to withdraw partially from the investment fund.

  4. Protection:

    Primarily being an insurance product, ULIP offers risk protection to the policyholder or person insured. On the death of the policyholder during the ULIP policy tenure, higher of the sum assured or fund value is paid as death benefits.

  5. Goal-based investment:

    ULIP is a goal-based investment wherein the main goal is long-term wealth creation through maximising returns from investment into the capital market. ULIPs helps the investor to build a corpus for their future goals such as retirement, children’s higher education, wedding and any big purchase etc

  6. Disciplined investment approach:

    ULIP inculcates the habit of disciplined investing in investors as the investment is done every year into the policy to yield good returns over the long-run.

  7. Diversification:

    ULIP offers a choice of diversification as it allows investors to invest in various financial instruments of the capital market. Investors are allowed to choose the funds in varying proportion for investment depending on the individual investor’s need and goal.

  8. Customisation:

    ULIP plans are customisable according to each individuals investing style, protection needs, goals and risk profile. There are various additional benefits are offered in the form of optional riders such as critical illness rider, accidental disability rider and waiver of premium rider. Individuals can customize the plan based on their need.

  9. Tax Benefit:

    ULIP is the most tax-efficient financial product that offers EEE benefits. Under the Income Tax Act, 1961, you can get below benefits by investing in ULIP plans:

    • Annual premiums paid towards ULIP investment is eligible for a tax deduction as per Section 80C of the IT Act that is up to the total limit of INR. 1.5 lakhs
    • There is no tax applicable on switches from one fund to another throughout the policy tenure.
    • Lump-sum paid on death or on maturity is also tax-free under Section 10(10D) of the insurance Act.

Best ULIP Plans in India:

There are numerous ULIP plans available in Indian Insurance market. Choosing the best plan would depend on each individual’s unique requirements in terms of risk appetite, future goals and need. We have listed down some of the best ULIP plans below.

ULIP Plan Name Entry Age Minimum Premium Premium Allocation Charges Policy Administration Charges Free Switches (Annual)
HDFC Life Click 2 Wealth Plan 30 days to 60 years For regular pay – INR 1,000 to INR 12,000 For single pay – 24,000 Nil Nil Unlimited
MetLife Smart Platinum Plan 7 years to 70 years INR 30,000 to INR 60,000 Up to a maximum of 1.25% per annum Maximum of up to INR 40 per month 4
Max Life Fast Track Super Plan 18 years to 50 years INR 25,000 to INR 1,00,000 2% for single premium policies 4% for regular annual premium policies INR 1,500 per year 12
SBI Life – Smart Wealth Assure Plan 8 years to 65 years INR 50,000 3% of single premium INR 45 per month 2
Bajaj Allianz Future Gain Plan 1 year to 60 years INR 3,000 to INR 36,000 0% to 1.5% INR 33.33 per month Unlimited
ICICI Pru Wealth Builder II Plan 0 years to 69 years INR 24,000 to INR 48,000 3% to 4% INR 500 per month NA
Aegon Life iMaximize Plan 7 years to 55 years INR 24,000 to INR 36,000 Nil INR 100 per month 4
Tata AIA Life Invest Assure II Plan 4 years to 55 years INR 75,000 to INR 1,20,000 5% of the annual premium 0.25% of the annual premium 12
HDFC Life Pro Growth Plus Plan 14 years to 65 years INR 2,500 to INR 10,000 2.5% of the annual premium Maximum of INR 500 per month Unlimited
LIC Market Plus- I Plan 18 years to 65 years INR 5,000 to INR 30,000 0.033 Maximum of INR 60 per month 4

How to Choose Best ULIP Plans?

Getting the best possible returns are of any investors dream. ULIPs can be a great choice to maximise your returns and create wealth over the long-run for meeting your life goals. As the product is structured uniquely to provide the triple benefit of life protection, wealth creation along with tax efficiency, ULIPs can be an ideal choice for investors of any risk profile and at any life stage. However, there are certain things to consider to make the best choice among a plethora of ULIP plan options available in the market. Following are the things to keep in mind to choose the best ULIP plans:

  1. Take the right amount of life protection:

    ULIPs being the insurance products secures your family by offering life cover. It is ensured that your loved ones are financially secure even when you are not around. 10 times of your ULIP premium can be availed as minimum life cover. Along with pure protection plans that you already have, you can get some additional coverage through ULIP investments. It’s important to access your coverage requirement before you make an investment so that you are adequately covered.

  2. Define your investment goals:

    You need to plan your investments carefully to achieve your life goals. Be it your life after retirement or your child’s dream of becoming a doctor or buying your dream, every life event needs to be planned carefully. It’s important to define your goals and start making investments accordingly as you get the clarity on time horizon and the approximate funds you need to meet the goals. You can choose the ULIP plan that suits your goal in every parameter.

  3. Know your risk appetite and choose funds accordingly:

    Risk-taking ability is the crucial element to be considered at the time of making ULIP investments that are market-linked. Higher the risk higher is the return. Also, at a young age, one can afford to take relatively more risk. To be aware of the risk appetite is important to choose the best suitable ULIP and to choose the best suitable investment fund. There is also fund switch options offered by ULIP plans. Consider the number of free switches available so that you can switch from one fund to another depending on the market condition and your changing needs.

  4. Consider fund performance and financial stability of the insurer:

    While choosing the ULIP plan, check the fund performances of the ULIP you have chosen. Specifically, the consistency of fund performance is what needs to be checked to understand how the fund responds to market swings. Though the past performances are not the indications of future performance, it gives you an idea on what to expect. Likewise, it’s important to consider the financial soundness and stability of the insurance provider while choosing ULIP by looking at the solvency ratio.

  5. Compare on the cost-benefit basis:

    ULIPs come in various types and with attractive features and benefits such as riders, top-ups and many more. It’s important to compare the features of various ULIPs alongside their cost can help you make a wise buying decision.

Key Features of ULIP Plan:

ULIP provides life protection along with an opportunity to grow your wealth. The ULIP plan comes with numerous attractive features. Key features of ULIP are:

  1. Investment fund switch:

    ULIP plan comes with many fund choices such as equity, debt or balanced funds. An investor can choose the fund of his/her choice. Later, during the policy term, the investor is allowed to switch from one fund option to another.

  2. Lock-in period:

    ULIPs come with a mandatory lock-in period of 5 years. ULIP can only be withdrawn after completion of these 5 years of the lock-in period. However, there will be surrender and discontinuation charges levied for the same.

  3. Premium redirection:

    ULIP also provides an option to redirect your future premiums to a different fund which is other than the base fund chosen by you.

  4. Top-up facility:

    ULIP allows you to increase the investment amount at any point in time during the policy term with the top-up facility.

  5. Partial withdrawal:

    ULIP comes with a flexible option of partial withdrawal to meet your emergency liquidity requirement. Part of your fund value can be withdrawn based on the terms and conditions of the policy.

Types of ULIP Plans in India:

ULIP plans can be categorised on the basis of death benefits, the purpose of investment and fund options.

Types of ULIPs on the basis of death benefits:

  1. Type I ULIP: In this, on the demise of the policyholder, the policy pays higher of fund value or sum assured as a death benefit to the nominee.
  2. Type II ULIP: In this, on the demise of the policyholder, the policy pays the sum assured + fund value as the death benefit to the nominee.

Types of ULIPs on the basis of purpose:

  1. ULIP for Wealth creation:

    This plan is particularly meant for building a corpus over the period of time. Young people in their early years of career can start investing in these plans to create wealth for the future. Here are some of the ULIPs for wealth creation

  2. ULIP Plan Name Entry Age Minimum Premium Premium Allocation Charges Policy Administration Charges Free Switches (Annual)
    HDFC Life Click 2 Wealth Plan 30 days to 60 years For regular pay – INR 1,000 to INR 12,000 For single pay – 24,000 Nil Nil Unlimited
    ICICI Pru Wealth Builder II Plan 0 years to 69 years Maximum – no limit INR 24,000 to INR 48,000 3% to 4% 3INR 500 per month NA
    SBI Life – eWealth insurance Plan 18 years to 50 years INR 10,000 onwards Nil NA NA
    Max Life Online Savings Plan 18 years to 60 years INR 36,000 annually Nil Nil Unlimited

  1. ULIP for Retirement planning:

    Planning for retirement life is very crucial. This plan specifically makes an investment for retirement life which will later be invested in annuities and paid out as regular pension. Here are some ULIPs for retirement:

  2. ULIP Plan Name Entry Age Minimum Premium Premium Allocation Charges Policy Administration Charges Free Switches (Annual)
    HDFC Click 2 Wealth with Golden Years Benefit Plan 0 to 60 years INR 1,000 to INR 24,000 annually Nil Nil Unlimited
    ICICI Pru Easy Retire Plan 35 years to 70 years INR 48,000 Up to 6% Maximum of INR 500 per month or INR 6,000 annually 4
    Max Life Online Savings Plan 18 years to 60 years INR 36,000 annually Nil Nil Unlimited
    Bajaj Allianz Life-Long Goal Plan No age limit INR 5,000 to INR 60,000 Up to 6% for offline plans Nil for online plans Nil Unlimited

  1. ULIP for the Higher education of children:

    There are ULIPs specially crafted for meeting children education requirement. These plans secure your child’s future education even when you are not around. ULIP child plans come with in-built Waiver of Premium (WoP) option. Here are some of the ULIP child plans

  2. ULIP Plan Name Entry Age Minimum Premium Premium Allocation Charges Policy Administration Charges Free Switches (Annual)
    HDFC Click 2 Wealth with 0 to 60 years INR 1,000 to INR 12,000 annually Nil Nil Unlimited
    Premium waiver Benefit Plan
    ICICI Pru Smart Kid Plan 20 years to 54 years INR 45,000 to INR 5,00,000 Single pay -3% Regular pay – 2% to 6% Maximum of INR 500 per month or INR 6,000 annually 4
    Max Life Online Savings Plan with premium waiver option Plan 18 years to 54 years INR 3,000 to INR 36,000 annually Nil Nil Unlimited
    Bajaj Allianz Future Gain with premium waiver benefit Plan 1 year to 60 years INR 2,500 to INR 25,000 2% INR 33.33 per month (increasing at 5% per annum) Unlimited

On the basis of investment funds:

Following are the ULIPs based on fund choices and risk category

  1. Equity funds:

    These are high-risk ULIP scheme that invests the majority of your premium into equity-based funds.

  1. Balanced funds:

    These are moderate risky ULIP schemes that invest your premium into balanced funds that strike a balance between debt instruments and equity.

  1. Debt funds:

    These are low-risk ULIP schemes that invest your premium majorly into debt funds that comprise of bonds and debt instruments.

Reason to Invest in ULIPs:

ULIP investment come with numerous benefits. Individuals of any life stage with any risk profile can consider ULIP for their long-term financial goals. Some of the important reasons to invest in ULIPs are as follows:

  1. To maximise returns:

    ULIPs are market-linked products, wherein you can choose to invest in different financial instruments through fund choices available. Based on your risk profile, you can choose to invest in an equity fund, debt fund, balanced fund or cash fund. Depending on your choice of fund and the risk category, your returns will vary. You are also allowed to switch from one fund another during the policy term. As the investment is market-driven, there is an opportunity to maximise your returns based on stock market performance.

  1. For life protection:

    As ULIPs are combination products, life protection is primarily offered along with an investment element. With the death benefits, ULIP assures the family of assured/investor is financially stable even when the assured is no longer around in this world.

  1. To achieve long-term financial goals:

    Investments into the capital market through ULIP can earn better over the long-term and help the investor to achieve many long-term goals such as retirement, higher education and marriage etc.

  1. For tax benefits:

    Besides every other benefit, the tax benefit is eye-catching for many. ULIPs help in a great way to reduce tax outgo as the premium paid qualifies for tax deduction under section 80C of the Income Tax Act, 1961. The best part is investing in ULIP is a tax-efficient option as it also provides the benefit of Section 10 (10D) of the Income Tax Act, 1961.

ULIP strikes a good balance between insurance and investment. Secure your family, maximise your returns and achieve your long-term financial goals.

Types of ULIP Charges:

ULIPs involve various types of charges details of which are clearly disclosed and stated in every ULIP’s policy document. Earlier, ULIPs were known to be of high-cost products in terms of charges. However, with the change in ULIP related regulations by the Insurance Regulator and Development Authority (IRDAI), revamped online ULIPs are considered to be cost-effective investments. Structure of charges may vary among insurance companies and plans. Let’s take a look at various charges that are levied in a ULIP plan.

  1. Premium allocation charges:

    Premium allocation charges is deducted as a fixed percentage of your ULIP premium. These charges are deducted before the allocation of investment units. Premium allocation charges include commission expenses, renewal expenses etc.

    For example, Premium collected on a ULIP plan is INR 1 lakh. Let’s say premium allocation charges for the first year is 5% of the premium received. Then, INR 5,000 will be deducted from the premium collected and the remaining INR 95,000 will be allocated to funds chosen by you.

    Premium allocation charges are front-loaded which are deducted beforehand every year when you make a premium payment, including renewal premium payments. However, these charges are more in the initial years and will reduce over the policy years. There are many ULIPs, more specifically online plans that are not levying any premium allocation charges also. Premium allocation charges may also vary depending on the premium type (single or regular) and mode of premium payments such as yearly, half-yearly, quarterly and monthly.

  1. Fund management charges:

    Fund management charges are levied as ULIP investments are made into various investment funds which need to be managed. Fund management charges are adjusted on a daily basis from net asset value (NAV) of the fund before arriving at it. The maximum fund management charges allowed for deduction is 1.35% per annum of the fund value. Fund management charges are usually more in equity funds than debt or balanced funds.

  1. Mortality charges:

    Basically, mortality charges are the cost of life insurance coverage under the ULIP plan. These charges may depend on various factors such as the amount of sum assured, age of the assured, health history and many more. Mortality charges are deducted on a monthly basis. Charges will be deducted proportionately from each fund you have chosen for investment by cancelling the units.

  1. Partial withdrawal charges:

    ULIP plans allow partial withdrawal of funds after the completion of the lock-in period of 5 years. Some of the policies will restrict the number of partial withdrawals to limited numbers such as 3 or 4. Some ULIP plans may allow unlimited partial withdrawals. However, after a limited number of withdrawals, ULIP plan may charge you for further withdrawals which are called partial withdrawal charges. Usually, partial withdrawal charges are flat fees.

  1. Switching charges:

    ULIP offers an excellent feature of fund switching. The plan allows you to switch from one investment fund to another depending on your investment need and market conditions. Generally, the number of switches allowed are limited to a certain number in some ULIP plans. Some plans may offer unlimited free switches. ULIP plans with limited switches charges you for additional fund switches that you make during the policy term. Switching charges may vary from INR 100 to INR 250 per switch depending on the ULIP plan or the insurance company.

  1. Premium redirection charges:

    Usually in a ULIP plan, in the beginning, you will choose a fund for your investment. And your further premiums are invested into the same funds. However, ULIP offers a feature called premium redirection wherein, you can redirect your future premium payments into a different fund. For example, you have chosen investment fund A and your future premiums can be redirected to fund B. Premium redirection can be done in limited numbers only. Premium redirection charges may vary from INR 100 to INR 250 per switch depending on the ULIP plan or the insurance company.

  1. Discontinuance charge:

    ULIPs come with a lock-in period of five years. If you discontinue premium payment within the lock-in period, your money will be locked in a discontinued fund. The same is applicable for the surrender of policy within the lock-in period also. These charges are pre-decided by IRDAI and are same almost cross all ULIP Plans.

  1. Policy administration charges:

    There are charges deducted to maintain your ULIP policy which is known as policy administration charges. Policy administration includes premium intimation, revival notice, documentation and many more. A flat amount is charges as policy administration charges.

  1. Miscellaneous charges:

    Miscellaneous charges in ULIP are of a smaller amount. This can be related to changing the premium payment mode or any other charges incurred.

ULIP Investment Myths Debunked

Let’s try to debunk certain myths relating to ULIP

Myth 1: ULIPs are high-cost products

Truth: ULIPs are not high-cost products, specifically after the change in regulations by the Insurance Regulatory and Development Authority of India (IRDAI) in 2010. The regulator has capped ULIP charges at 3% of gross yield for ULIP plans if the policyholder stays invested up to 10 years and 2.25% if the policyholder continues to stay invested for more than 10 years. Hence, the front load has reduced which mainly comprises of commission. Online ULIP plans are more cost-effective plans as the charges are relatively less.

Myth 2: ULIPs are high-risk investments as they are market-linked

Truth: ULIP offers you to select an investment fund based on your risk appetite. There are various investment funds offered by ULIP comprising of equity funds, debt fund and balanced funds or combination of all of these funds. Many ULIP plans offer eight to nine types of funds suitable for varying risk categories. ULIPs are suitable for conservative to aggressive investors.

Myth 3: ULIP is not a good investment choice

Truth: ULIP is an ideal investment option for all type of investors irrespective of their risk appetite and life phase. ULIPs are available for various long-term goals such as for retirement, child education and wealth creation etc. Depending on your risk profile, goal and purpose you can choose the investment fund. According to your changing needs, you can switch from one fund to another fund also. In short, ULIPs are excellent products to build wealth over long-run with the benefit of customisation, flexibility, transparency and many more such benefits.

Myth 4: ULIPs are illiquid as they are long-term products

Truth: ULIPs offer liquidity in the form of partial withdrawals after 5 years of the lock-in period. During an emergency, you can withdraw a part of ULIP funds to meet the urgent liquidity requirements.

Myth 5: ULIPs cannot be surrendered during the policy period

Truth: ULIP plan can be surrendered after completion of the lock-in period of five years. Before which if you discontinue, certain charges will be deducted and the fund amount will be parked in discontinuance fund and the payout will be made after completion of five years. However, to reap the benefit of your investment it is advisable to stay invested throughout the policy period. The benefit of compounding and the benefit of the change in the market cycle can be experienced only if you stay invested for long.

Myth 6: Life cover in ULIP is impacted by market volatility

Truth: Sum assured or life cover in ULIP plan is unchanged throughout the policy period irrespective of the market volatility. Though the performance of your investment is linked to the capital market, the life cover will remain unaffected by the market volatility.

Myth 7: ULIP does not allow investment of surplus funds

Truth: ULIPs offer the top-up facility wherein you can invest surplus funds over and above your regular premium investments that you are making into the policy. Tax benefit can also be enjoyed on the top-up investments that you make.

Frequently Asked Questions (FAQs)

  1. What are the eligibility conditions to invest in ULIP plans?

    To invest in ULIP plans you must meet the following eligibility requirement

    • You need to meet the entry age criteria (both minimum and maximum)
    • You need to meet the age criteria, which is below the maximum maturity age while exiting a ULIP plan.
    • You must adhere to the plan’s terms and conditions relating to premium payment mode and term.
  1. What are the documents required to invest in ULIP?

    Following are the documents required for investing in ULIP:

    • Identity proof: PAN card, Voter’s ID, Aadhaar card, passport etc
    • Address proof: Aadhaar Card, Voter’s ID, Passport, Driving license, utility bills
    • Income proof: Income tax returns, bank statements, salary slips
    • Age proof: Birth certificate, Aadhaar card, Passport, Driving license etc
  1. Can ULIP be revived after discontinuation of premium?

    Yes ULIP can be revived within a revival period which is usually two years from the date of last premium payment.

  1. Is there a grace period given for premium payments in ULIP?

    Yes. Usually, ULIPs provide 15 days to 30 days of grace period for making the premium payment.

  1. Can investment in ULIP plan be cancelled after buying?

    Yes. Investment in a ULIP plan can be cancelled within the free look period with the reason stated. Usually, 15 days to a maximum of 30 days are given as free look period during which you can cancel your investment in ULIP plan without charges if you are not satisfied with the terms and conditions of the policy. However, it can be done with reasons stated for rejection.

All About Employees State Insurance Scheme

In 2012, about 22% of the Indian population is below the poverty line and most of them are workers who work in factories and industries. These workers, if they face any accidental injury, disability or death, face severe financial consequences because their family depends on their earnings. That is why a social security scheme is needed to cover the financial loss faced by workers and their dependents in case of accidental contingencies suffered during their work.

Keeping this sentiment in mind, the Employees’ State Insurance Act was passed by the Parliament in the year 1948. This Act intended to formulate a social security scheme for the workers belonging to the economically weaker sections of the society. The Act included the health-related contingencies commonly faced by workers like sickness, disablements, maternity, occupational illnesses or diseases, injury, death, loss of earning capacity, etc. The Act then laid down the provisions which would be applicable in case the workers face any of these health-related emergencies over the course of employment and the Employees’ State Insurance Scheme was born. Let’s understand the scheme in details –

What is the Employees’ State Insurance Scheme (ESIS)?

The Employees’ State Insurance Scheme is a social security scheme which covers the financial loss suffered by employees when they fall sick, become disabled or die due to employment-related injuries. The scheme is a self-finances scheme which is managed and run by the Employees’ State Insurance Corporation.

What is the Employees’ State Insurance Corporation?

The Employees’ State Insurance Corporation is a statutory body which oversees and governs the running of the Employees’ State Insurance Scheme. The Employees’ State Insurance Corporation (ESIC) was formed as per the provisions of the Employees’ State Insurance Act, 1948. The Employees’ State Insurance Corporation is headquartered in New Delhi and has 23 regional offices, 800 local offices and 26 sub-regional offices. All the offices of the Employees’ State Insurance Corporation are tasked with the implementation and monitoring of the ESIS.

Employees’ State Insurance Corporation Composition

The Employees’ State Insurance Corporation is made up of the following members –

  1. The Director-General of the Employees’ State Insurance Corporation (ex-officio)
  2. A chairman who is appointed by the Central Government
  3. A vice-president who is appointed by the Central Government
  4. Up to 5 individuals who are nominated by the Central Government
  5. One individual to represent each Indian State. This individual is also appointed by the Central Government
  6. One individual to represent each Union Territory of India. This individual would be appointed by the Central Government
  7. 10 individuals who would represent employers. These people would be nominated by the Central Government
  8. 10 individuals who would represent the employees and be nominated by the Central Government
  9. 2 individuals who would represent the medical profession. They would be nominated by the Central Government
  10. 2 members of Lok Sabha and 1 member of Rajya Sabha totalling 3 Members of Parliament 

Eligibility for Employees’ State Insurance Scheme (ESIS)

The Employees’ State Insurance Scheme is applicable to the employees/workers of organisations –

  1. Non-seasonal factories as defined under Section 2 (12) of the Employees’ State Insurance Act, 1948
  2. Under Section 1(5) coverage is allowed to the following –
    • Restaurants
    • Motor road transports
    • Newspaper establishments
    • Hotels
    • Shops
    • Movie theatres or any other types of theatres
    • Private medical institutions
    • Education institutions
  3. Other establishments as defined under the Employees’ State Insurance Act, 1948

    These establishments can opt for ESIS if they have at least 10 workers and the wages of the workers is up to INR 21,000. Moreover, in the case of Maharashtra and Chandigarh, the establishments should have a minimum of 20 workers with wages up to INR 21,000 to opt for the ESIS scheme.

Features of ESIS:

The Employees’ State Insurance Scheme has the following salient features –

  1. The scheme not only covers eligible workers, but it also covers their dependents
  2. The scheme pays a daily or monthly cash allowance for different types of medical contingencies faced by workers
  3. The scheme is easy to apply and provides good benefits
  4. The contribution is done by both workers and employers thereby building a good corpus for meeting the different types of medical expenses
  5. Even unemployed individuals can avail benefits if they were previously insured under the scheme
  6. The scheme provides coverage for retired members too if they pay nominal premiums

How does ESIS work?

As mentioned earlier, ESIS is a self-financing scheme wherein the covered workers and their employers contribute towards the scheme. The contribution is expressed as a fixed percentage of the wages of the workers. This percentage is as follows –

  1. Employee’s contribution – 1.75% of the wage
  2. Employer’s contribution:
    1. For existing areas – 4.75% of the wage
    2. For newly added areas – 3% of the wage for the first 2 years

      Moreover, if the daily average wage of the employee is INR 137 or below, the employee does not have to make a contribution towards ESIS. The employer would, however, have to contribute his share towards the scheme even if the employee is exempted.

The State Government also contributes towards the scheme. The Government’s contribution is 1/8th of the expense incurred on the medical benefits provided to employees up to a maximum of INR 1500 per insured worker per year. Any additional expense which is more than the contributions made by the employees, employers and the Government would also be borne by the State Government.

The employer is required to contribute the total contribution, including the employee’s share, to the scheme. The contribution should be deposited with the Employees’ State Insurance Corporation within 15 days from the end of the month. The deposit can be done online or through the branches of authorized public sector banks

The contribution period and the cash benefit period are divided into two blocks. These are as follows:

  1. If the contribution period is between 1st April and 30th September, the cash benefit period would be between 1st January and 30th June of the next year
  2. If the contribution period is between 1st October and 31st March, the cash benefit period would be between 1st July and 31 December of the same year

What is covered under ESIS?

The benefits payable under the State Insurance scheme for employees are laid down under Section 46 of the Employees’ State Insurance Act, 1948. These benefits are as follows –

  1. Medical benefit

    Medical coverage is provided to the injured worker as well as his/her family members if they fall ill. There is no limit on the medical expenses which are covered under the scheme. The scheme pays the incurred medical expenses fully. Retired and permanently disabled workers who are/were insured under ESIS and their respective spouses can also avail medical coverage is they pay a premium of INR 120.

  1. Sickness benefit

    If the insured worker falls sick and misses work, this benefit pays compensation during the sickness period. The compensation is paid at the rate of 70% of the employee’s wage and it is payable for a maximum of 91 days per year. To be eligible to receive the sickness benefit, the insured employee should have made his contribution for at least 78 days in a six-month contribution period as mentioned above.

    Sickness benefit also includes Extended Sickness Benefit and Enhanced Sickness benefit. Let’s understand what these benefits are –

    1. Extended Sickness Benefit:

      Under the Extended Sickness Benefit, the sickness benefit is payable for up to 2 years @ 80% of the wages. This is applicable in case of 34 specific long term and malignant ailments as defined in the Employees’ State Insurance Act, 1948.

    2. Enhanced Sickness Benefit

      Under this benefit, the full wage is paid to the insured employee who undergoes sterilization. The benefit is payable for 7 days for males and 14 days for females.

  1. Maternity benefit

    If the insured employee is pregnant, a maternity benefit is payable under the ESIS scheme. This benefit is payable for 26 weeks. The benefit duration can also be extended by another month if it has been advised by the doctor. The benefit is equal to the full wage of the worker and is payable only if the worker has contributed for at least 70 days in the last two contribution periods.

  1. Disablement benefit

    Disablement benefit is further subdivided into two categories depending on the type of disability suffered. These variants are as follows –

    1. Temporary Disablement Benefit

      If the worker becomes temporarily disabled and unable to work, a temporary disablement benefit is paid. This benefit is paid at the rate of 90% of the wage and is payable for as long as the disability persists.

    2. Permanent Disablement Benefit

      If the employee becomes permanently disabled, a permanent disablement benefit is paid. The rate of payment is 90% and the benefit is paid in the form of monthly payments. The payment of the benefit, however, would depend on the extent of loss suffered which should be certified by a Medical Board.

  1. Dependants Benefit

    If the insured worker dies due to employment-related injuries or sickness, a dependants benefit is payable to the dependents of the insured. This benefit is paid @90% of the wage of the employee and is paid monthly.

  1. Funeral expenses

    In case of death of the insured, INR 15,000 is paid as funeral expenses to the dependant of the insured who does the last rites of the deceased employee.

  1. Confinement expenses

    Confinement expenses are paid if an insured female worker or the wife of an insured male worker is confined to a place where the facilities available under ESIS are not available.

  1. Vocational Rehabilitation

    Training is imparted to permanently disabled workers for their rehabilitation.

  1. Physical rehabilitation

    Rehabilitation facilities are provided to workers who face physical disablement because of their occupation.

  1. Old age medical care

    If the insured employee retires after attaining the retirement age or under the VRS or ERS scheme, old age medical care can be availed if a premium of INR 120 is paid. This benefit is also available to employees who had left work due to permanent disability and their spouses if the premium is paid.

  1. Rajiv Gandhi Shramik Kalyan Yojana

    This is a scheme of unemployment where an allowance is paid to the unemployed worker if the worker becomes unemployed after being covered for at least 3 years and the reason of unemployment is closing of the establishment, permanent invalidity or retrenchment.

    The allowance payable would be as follows –

    1. 50% of the wage would be paid as unemployment allowance for up to 2 years
    2. Medical care would be payable to the insured and his/her family during the period when the allowance is paid
    3. Vocation al training would be provided so that the unemployed worker can upgrade his/her skills. The expenses incurred on travelling for the training would be borne by the Employees’ State Insurance Corporation.
  1. Atal Beemit Vyakti Kalyan Yojana

    Employees covered under Section 2 (9) of the Employees’ State Insurance Act, 1948 can avail this scheme. If the employee is rendered unemployed, the scheme pays cash compensation for a maximum of 90 days. The compensation can be claimed only once in the lifetime of the employee and is available if the employee is unemployed for three or more months. To be eligible for the scheme, the employee should have worked for two insurable years and must have contributed for at least 78 days in the last four contribution periods. The compensation would not be more than 25% of the average daily wage of the worker. The scheme came into effect in the year 2018 and is a pilot scheme for the next two years only.

  1. The incentive for employing disabled

    If private sector employers give regular employment to individuals with a disability, the employers’ contribution to ESIS would be borne by the Central Government for three years. Moreover, physically disabled individuals enjoy a higher minimum wage limit of INR 25,000 to be eligible for ESIS.

Why is ESIS beneficial?

The Employees’ State Insurance Scheme proves beneficial for employees as well as employers. It has the following benefits –

  1. The scheme takes care of the employers’ responsibilities in providing for their employees’ medical needs in case of contingencies. Employers can, therefore, be financially free. They don’t have to compensate their employees in case of any contingency suffered over the course of employment as the scheme takes care of it for them
  2. Since the scheme pays the employees a benefit based on their wages, the employees don’t lose out the wages which they could have earned if they would not have faced a medical contingency. The scheme, therefore, prevents the loss of wages
  3. Since dependents are also covered, the injured worker does not have to bother about meeting the medical expenses of his/her family members if they fall ill
  4. The scheme ensures that females do not lose their wages due to pregnancy
  5. Retired and unemployed members can also avail the benefits of the scheme if they pay a very low amount of premium. Thus, the scheme provides affordable coverage to members who have left employment
  6. The contributions are very low and compared to them the workers can receive enhanced coverage benefits.

The success of the scheme

When the ESIS scheme was launched in the year 1952, only two cities were covered – Delhi and Kanpur. However, today, the scheme is spread across 843 centres across 33 States and Union Territories. More than 7.83 lakh factories and establishments are covered under the Employees’ State Insurance Act, 1948. The scheme covers more than 2 crore individuals and has a beneficiary count of 8.28 crores.

How to register for ESIS?

To register for the Employees’ State Insurance Scheme, eligible employers should download Form 1 in PDF version. This form is the Employers Registration Form which is required to be filed by employers to register themselves and their workers under ESIS. The form can then be submitted online whereupon it would be checked and verified by the Employees’ State Insurance Corporation and if everything is proper, the scheme would be issued.

Documents required for registering with ESIS

To register under ESIS, the following documents would have to be submitted –

  1. Registration Certificate which has been received under the Factories Act, 1948 or Shops and Establishment Act
  2. The company’s Memorandum of Association and Articles of Association
  3. Certification of Registration if the establishment is a company. In case of partnership firms, a Partnership Deed is required
  4. A list of all the employees who are working in the organisation
  5. PAN cards of a company registering under ESIS as well as its employees
  6. The details of the annual incomes of the employees of the company
  7. Cancelled cheque of the company’s bank account
  8. List of names of the Directors of the company
  9. List of the names of the shareholders of the company
  10. A detailed attendance list of the employees of the company

The Employees’ State Insurance Scheme is a social security scheme which allows multi-faceted coverage benefits to eligible employees. So, if you are an eligible employer opt for the scheme for your employees. Alternatively, if you are an employee, check if you are eligible for the scheme and ask your employer for the same. The benefits are good and are available at very little contributions. So, enrol under the Employees’ State Insurance Scheme and avail the comprehensive coverage benefits offered.

Frequently Asked Questions:

  1. Is the ESIS scheme mandatory?

    Yes, employers are mandated to enrol under the ESIS scheme if they are registered under the Factories Act, 1948 or the Shops and Establishment Act.

  2. How are employers and employees recognised under the scheme?

    A 17-digit unique code called the Employees’ State Insurance Code is allotted to employers who register under ESIS. Similarly, every insured employee is allotted a unique code which helps in identification of the insured establishments and their members.

  3. How to make a claim under ESIS?

    To make a claim, you would have to download Form 15 and fill it up stating the details correctly. The filled form should then be submitted to the Employees’ State Insurance Corporation for claim settlements. The Corporation would assess the claim and settle it.

  4. What would happen if I change jobs?

    Even if you change jobs you can get coverage under ESIS if the new organisation has enrolled under the scheme and you are eligible for coverage after the job change.

How to Calculate Your Pension Amount for Your Retirement?

Pension planning is a crucial part of your financial planning as it ensures you comfortable retirement life. Pension is essential for you to maintain the standard of living, income support for unforeseen expenses once you stop working. Hence, during your work-life stage, it’s important to plan your future financial goals prudently so that your retired life is financially secured. After retirement, even if you stop working, your responsibilities continue to exist. You would probably meet major goals of your life such as children’s education, marriage and paying off home loan dues before retirement. But, you still need regular income to match up your standard of living, for health and some for your hobbies and vacations. Pension planning helps you know how much money you would need to have a prosperous and comfortable retirement life. Pension calculator helps you through the process of planning. In this article, let’s learn more about pension calculator.

Pension plan calculator

Pension plan calculator is an effective online tool that helps you figure out how much amount you need to save for your retirement life. You can know a tentative pension by using pension plan calculator. In India, a basic retirement calculator would require following details to calculate your tentative pension.

  • Personal details:

    Details include your name, date of birth, expected retirement age, risk appetite and preferred lifestyle after retirement

  • Finance details:

    Details include your current income and expenses, money saved for retirement till date and how much can you save each month.

  • Savings details:

    Details include money already saved for investment, various types of financial instruments you are invested in and your preferred investment tools for long-term.

    Once you input your details into the online retirement planning calculator, the calculator will assess your retirement needs and provide you with the result that illustrates the amount that you need to save monthly for reaching your retirement goals.

    You can also edit the details that have been entered if there are any changes and the result will be given based on your risk profile and pension requirements.

Benefits of pension plan calculator

Pension plan calculator or retirement planning calculator available online is an efficient and effective tool that helps you draw a roadmap for your financial security in the golden years of your life. Following are the main advantages of using pension plan calculator while you are planning for your retirement:

  1. Provides your financial guidance:

    Every bread earner of the family wants to secure his and family’s life post his working years of life. To get a clear idea of how much one needs to save for availing adequate security post-retirement, a tentative calculation and guidance are needed. As the pension plan calculator helps you understand the amount that you need to save, you get a clear picture of what needs to be done

  1. Pension plan calculators do the amazing job without any cost:

    You can plan your retirement without any cost of the assessment.

  1. Retirement calculator helps you in long-term planning:

    Retirement calculators assess your long-term financial requirement based on your needs, lifestyle and current financial status.

How to use pension plan calculator?

When you access an online retirement planning calculator, you need to insert below details

  1. Your date of birth to find figure out your current age
  2. Fill in the expected retirement age in years. This will be the tentative age at which you would want to retire.
  3. Choose your risk appetite. This will help to know your risk profile – conservative, moderate or aggressive
  4. Choose your post-retirement lifestyle – luxurious, comfortable or basic
  5. Mention details of current income that salaries income, current expenses
  6. Mention details of investments that you have already made for the purpose of retirement
  7. Input the amount of savings that you can make every month

Once you provide all the details, the online pension plan calculator will take your age, savings details, years left for retirement into consideration and then factor in inflation to calculate the corpus required for your retirement life. This will also show how much money you need to invest monthly to achieve this corpus target. Based on the information given by you, the retirement calculator makes an estimated projection and calculates your future cost of living after considering inflation at an assumed rate.

Let’s take an example to understand this.

Let’s say you are born on 1st October 1989 and you are planning to retire at the age of 60 years. Your current annual salary is INR. 10, 00,000 and your yearly savings are INR. 1, 00,000. You would prefer to make investments in moderate risky financial products. Post-retirement, you would want to live in your own house comfortably.

That means you would be retiring in 2049! You have 30 more years to save for your retirement life. If you assume inflation at the rate of 6%, you would need INR. 2 Cr corpus to be saved for your comfortable retirement life. The corpus can yield you adequate pension post-retirement. To achieve this, you would need to save approximately INR. 16,000 per month.

Pension plan calculator makes it easy for you to plan your retirement life. If you have a clear roadmap, it becomes easy to reach the desired goal. Planning retirement well in advance is imperative to lead life peacefully post-retirement.

Why is pension required post-retirement?

Pension is required after retirement to create a source of income. Retirement is that time when you don’t have a regular source of income but the expenses do not stop. To meet these expenses and to be financially independent you need a source of income. Pension receipts are the source of this income and play an important role after you retire.

Types of pension instruments available in the market

Since pension plays an important role after retirement, there are different types of pension instruments which you can choose to create a retirement corpus. Some of the most popular types of instruments are as follows –

  1. Mutual funds

    Mutual funds are market-linked investment avenues wherein the investment risk is diversified. You can invest in small affordable amounts regularly through Systematic Investment Plans or you can invest in lump sum into mutual fund schemes. There are different types of schemes with different risk profiles and you can choose any scheme to create a retirement corpus.

  1. EPF

    Employees’ Provident Fund or EPF are retirement related investment schemes for those of you who are employed. 12% of your salary is invested every month by you and your employer towards the EPF account. The money accumulates till you are employed and then it pays you pensions after retirement. EPF is a good way of creating a retirement corpus and a guaranteed pension post-retirement for salaried individuals.

  1. PPF

    Public Provident Fund or PPF is a voluntary investment scheme wherein you can invest to create a retirement corpus. PPF investments can be done by both employed and non-employed individuals. The investments done, interest earned and the corpus created are all tax-free in your hands. Moreover, PPF investments have a long-term horizon allowing you to build up a substantial retirement corpus.

  1. NPS

    National Pension Scheme (NPS) is a newly introduced retirement oriented investment scheme. You can invest in the NPS scheme and build up a corpus for your life post retirement. The investments in NPS are directed towards the capital market which allows you attractive returns. Moreover, you can claim an additional tax deduction of up to INR 50, 000 on your NPS investments under Section 80 CCD which also helps you in saving tax.

  1. Life insurance pension plans

    Life insurance pension plans are retirement plans meant to create a regular source of income after you retire. You can invest in these plans to create a retirement corpus and receive guaranteed income post retirement. There are two types of pension plans which are as follows –

    1. Deferred pension plans which allow you to build up a retirement corpus by gradually investing over your active working life. You can buy a deferred annuity plan and choose a policy term over which you can pay the premium and build up your retirement corpus. You can then pay premiums to build up the corpus. In case of death during the policy tenure the plan would promise a death benefit to your nominee. On the other hand, when the plan matures, you would have created a corpus for your retirement. You can, then use the corpus to receive lifelong annuities
    2. Immediate annuity plans which give you regular income immediately after you buy the plan. These plans are for those who have built up a retirement corpus and are looking to invest the corpus for earning regular incomes. Immediate annuity plans promise lifelong incomes from the corpus that you invest. They also allow you to choose from a variety of different annuity options to receive the income. You can either receive the income only for yourself or you can add your spouse and ensure that your spouse also receives a regular income if you die early.

      Life insurance pension plans, therefore, are a source of guaranteed income for you after you retire.

Why retirement planning is required?

Following are the reasons why you need to plan your retirement well in advance, in fact as soon as you start earning.

Need for retirement planning

  1. Peace of mind:

    One of the crucial reasons to plan retirement in advance is for peace of mind in the golden years of your life. Planning several decades in advance gives you and your family a sense of security. Specifically, after retirement when you are free of all the major responsibilities of your life you would want to pursue a hobby or go on vacation and spend quality time with your life partner. You may also need fund to meet your healthcare requirement at that age. Considering all of this, financial worry is the last thing that one would imagine at the retirement age. If you would want to lead a peaceful and comfortable post-retirement life.

  2. Compounding effect:

    When you start investing for retirement at an early age, you get the benefit of compounding. Specifically, for long-term goals like retirement, planning is very much essential to reap the benefits of compounding.

  3. Insufficient employer-funded pension:

    An employer funded or government-funded pension schemes are not completely sufficient to meet your post-retirement needs. Hence, it’s important to plan retirement and fill the gap in investment. You can make use of pension plan calculator to know the tentative pensions and how much you need to invest to get to the target point.

  4. Support system:

    You never retire from your responsibilities. Also, desires never end. Even after you retire, you would still want to fulfil your family’s dream and stay as a support system for them always. Planning retirement life well in advance helps you to stay as a support system to family even after you retire from work.

  5. Social security:

    In a country like India, focusing on the social security system is imperative. It’s wise to plan in advance for your retirement life and start building a corpus for a happy and comfortable life later. You should be self-sufficient to face the unforeseen events along with meeting regular expenses.

    With the help of a retirement planning calculator, you can effectively and efficiently plan for your prosperous post-retirement life.

Frequently Asked Questions:

  1. What is the pension plan?

    A pension plan is a financial product offered by insurance companies. Pension plans help you build sizable retirement corpus through regular investments that you make over the years. On maturity or at the time of the vesting of the policy, you can take part of the corpus in a lump sum and the remaining will be used to buy annuities which will continue to pay you regular monthly income. You can also choose to buy annuities with the entire corpus without withdrawing the lump sum.

  2. When is the ideal time of your career to plan for retirement?

    There is nothing called an ideal time for retirement planning. It’s always sooner the later. It’s wise to start contributing to your retirement corpus as soon as you start earning. With age and time, you can keep increasing your investments.

  3. What are the factors I should consider while planning for my retirement?

    You need to keep certain key points in mind while planning for your retirement. Following are the key factors to consider while you plan for retirement:

    • Current financial conditions which include your current income, expenses and existing savings
    • Your debt obligations
    • Long-term living arrangements
    • Financial planning for other long-term goals

    While planning, to get clear guidance on the amount that you need to invest you can take the help of pension plan calculator.

  4. What are the tax benefits offered by pension plans?

    Annual contributions made to pension plans qualify for tax deduction under Section 80C of the Income Tax Act, 1961. Tax implications of pension plans also depending on the type of plan you are availing.

A guide to Employee Pension Scheme

Creating a source of income after retirement is important so that you can continue your lifestyle undisturbed without making any financial compromise. In fact, if you have amassed a retirement corpus, you can fulfil your life dreams once you are free from other financial liabilities. Given the importance of a retirement fund, the Employees’ Provident Fund Organisation (EPFO) introduced the Employees’ Provident Fund (EPF) Scheme. Later on, in the year 1995, the Employee Pension Scheme (EPS) was also launched to ensure that you receive a lifelong pension after you retire. While many of you are familiar with the concept of EPF, the Employee Pension Scheme is not studied in detail. So, let’s understand what the scheme is all about –

What is the Employee Pension Scheme?

Employee Pension Scheme is a scheme of pension for employees working in the organized sector. As per the provisions of the EPF Act, 12% of your basic salary is invested in the EPF Account. Your employer also contributes an equal amount to the EPF Account.

However, from the employer’s share of contribution, 8.33% of the contribution is invested in Employee Pension Scheme and the remaining is invested in the EPF Account. Thereafter, after you attain 58 years of age, the balance accumulated in the Employee Pension Scheme is used to pay you lifelong annuities. Thus, while EPF Account creates a retirement corpus, Employee Pension Scheme ensures that you get annuities after you retire.

Features of the Employee Pension Scheme

Under the Employee Pension Scheme, the following features are notable –

  1. Only a part of the employer’s contribution is directed towards the EPS scheme. Your contribution is entirely invested in the EPF Account
  2. There is a limit on the investment which can be done towards the Employee Pension Scheme. This limit is lower of INR 1250/month or 8.33% of the employer’s contribution to the EPF Account
  3. Investment in the scheme continues till you reach 58 years of age
  4. You can start receiving a reduced pension amount after you reach 50 years of age
  5. You can also postpone the date of receiving annuities. Deferment is allowed for two years till you reach 60 years of age. If you defer receiving pensions, you get an additional interest rate of 4% on the pension amount
  6. Besides the employer’s contribution, the Government also contributes 1.16% of your monthly salary towards your EPS account

Who is eligible to join the Employee Pension Scheme?

You can join the EPS scheme if you fulfil the below-mentioned criteria –

  1. You should be a member of EPFO
  2. You should have worked for a minimum of 10 years even though the service was not continuous
  3. You should attain 58 years of age to qualify to receive annuities

 

Difference between EPF and EPS

 

Many of you confuse EPF with EPS but both these concepts are different from one another. Let’s understand how –

EPF EPS
EPF aims to create a retirement corpus for you after you retire EPS aims to create a source of regular income through pensions after you retire
You and your employer both contribute towards the EPF scheme Only your employer contributes towards the EPS scheme
You contribute 12% of your basic salary including dearness allowance towards EPF while your employer contributes 3.67% of your pay towards EPF Employer’s contribution to the EPS scheme is 8.33% of your basic salary including dearness allowance
There is no limit to the EPF contribution. You can also contribute additional amounts to your EPF account if you want EPS contributions are limited to INR 1250 per month even if the amount is below 8.33% of your basic pay
Partial withdrawals are allowed from the EPF Account Partial withdrawals are not allowed from EPS

Calculation of pension amount under EPS

If you are wondering how much pension you would be able to receive under the Employee Pension Scheme, stop wondering. The amount of pension that you can receive can be calculated. There are two types of calculations for calculating the monthly pension depending on the period when you joined the EPS scheme. These are as follows –

  1. Calculation # 1 – If you have joined EPS scheme before 16th November 1995If you joined employment before 16th November 1995 and became a member of the EPS scheme, your pension would depend on your salary and the number of years of service that you have completed. The pension amount is fixed and is as follows –
    Completed years of service Monthly pension if the salary is up to INR 2500/month Monthly pension if the salary is above INR 2500/month
    10 years INR 80 INR 85
    11-15 years INR 95 INR 105
    15-20 years INR 120 INR 135
    More than 20 years INR 150 INR 170
  1. Calculation #2 – If you have joined the EPS scheme after 16th November 1995In case you became an EPS member after 16th November 1995, the monthly pension amount would be different. It would be calculated based on a formula which is as follows –

    Amount of monthly pension = (pensionable salary * pensionable service) / 70

    In this formula, the concepts of pensionable salary and service are defined below:

    1. Monthly Pensionable SalaryThe monthly pensionable salary is defined as the average monthly salary in the last 12 months of exiting the Employee Pension Scheme. The maximum pensionable salary per month would be restricted to INR 15,000 so that the employer’s contribution does not exceed INR 1250 (8.33% of INR 15,000 is INR 1250). Moreover, if, over the last year, there are some days for which you do not receive a salary, the proportionate salary of those days would be added to the monthly income when calculating the average. For instance, suppose you join work on the 15th of the month. In that case, for that month, you would receive only half the salary. However, the full months’ salary would be considered when calculating the pensionable salary.
    2. Pensionable serviceThe total period over which you have worked is considered to be your pensionable service. Even if you have changed jobs, the completed duration at each employer would be added to get the pensionable service duration. The total duration would be rounded off to the nearest year if the aggregate also includes months. So, if your total work duration is 12 years and 4 months, the pensionable service would be 12 years. But, if the duration is 12 years 6 months or above, the pensionable service would be 13 years. You also get a bonus of two years if you have completed 20 years of service. So, if you have 20 or more service years under your belt, an additional two years would be added to your pensionable service. However, if you have not completed 10 years of service and you withdraw the EPS corpus completely when you change jobs, the EPS contribution would become zero. Moreover, your service duration would also be started from zero even though you have worked before withdrawing the EPS amount.

When is a pension payable under Employee Pension Scheme?

The sole purpose of contributing to the Employee Pension Scheme is to provide you with pensions. So, when it is time for you to receive pensions, you should know when you can avail pensions.

There are different scenarios when you can avail pension. Let’s understand the scenarios in details –

  1. When you retire after attaining 58 years of age:After you attain 58 years of age and if you have provided a total of 10 years of service, you become eligible to receive pensions under the Employee Pension Scheme. To receive the pension you would have to fill up Form 10D to start availing pensions every month. The form can be filled using an EPS Scheme Certificate which is generated when you attain 58 years of age.
  1. When you retire after attaining 58 years of age but you have not completed 10 years of service:If you have attained 58 years of age but your aggregate years of service is below 58 years, you would not become eligible to receive monthly pensions under the Employee Pension Scheme. In that case, you can withdraw the accumulated corpus in the EPS scheme by filling up Form 10C.
  1. If you suffer from total disability during active working years:If you suffer from a permanent and total disability before attaining 58 years of age, you qualify to receive monthly pensions whether or not you have completed 10 years of service. In that case, you would receive pensions from the date of your disablement and the pension would continue throughout your life. Your employer should have deposited at least one month’s contribution to the EPS account for the pension to start. Moreover, you would also have to undergo a medical check-up to certify that you are unfit to continue working.
  1. If you suffer from total disability during active working years:The Employee Pension Scheme doubles up as a family pension scheme because it provides your family with pensions in case of your death.

Pensions are payable in the following cases –

  1. If you die in working age and your employer has contributed at least one month’s amount to the EPS scheme
  2. If you have completed 10 years of service but die before reaching 58 years of age
  3. If you have started availing monthly pensions at 58 years of age and then you die

Different types of pensions available in India:

Different types of pensions are payable under the Employee Pension Scheme. These are as follows:

  1. Widow pension

    Also called Vridha Pension, widow pension is the pension payable to the widow of an eligible EPS member. The pension is payable to the widow throughout her life. However, in the case of remarriage, the pension would stop when the widow is remarried. If there is more than one widow, the pension would be payable to the eldest. The minimum amount of pension is INR 1000. The pension amount is calculated as follows –

    Monthly pensionable salary in case of widow pension

    Amount of widow pension

    INR 6200

    INR 2021

    INR 6250

    INR 2026

    INR 6300

    INR 2031

    INR 6350

    INR 2036

    INR 6400

    INR 2041

    INR 6450

    INR 2046

    INR 6500

    INR 2051

    These are the sample rates. However, recently, the monthly pensionable salary has been increased to INR 15,000 from the earlier INR 6500. As such, the amount of widow pension in current times is higher.

  2. Child pension

    In case of death of the member, along with widow pension, a monthly pension is also payable for the dependent children of the member if they are below 25 years of age. The amount of pension is calculated as 25% of the widow pension per child and it is paid for a maximum of two dependent children. Moreover, the pension is payable until the child/children attain 25 years of age.

  3. Orphan pension

    If the EPS member dies and there is no surviving widow but children, an orphan pension would be payable for the surviving child/children. The pension would be payable for a maximum of two children and the amount would be 75% of the applicable widow pension.

  4. Reduced pension

    If you have completed 10 years of service and have attained 50 years of age, you can choose to start receiving pensions before reaching 58 years of age. If you do so, you get pensions at a reduced rate. The rate of pension is calculated as follows –

    Reduced rate = [100 – 2(58 – age from which you choose to receive pension)]

    So, if you want to receive pensions from 52 years of age, the rate of pension would be 88% which is calculated as [100 – 2 (58 – 52)]

Different types of pension forms under EPS:

In order to start receiving monthly pensions under the Employee Pension Scheme, you would need to fill and submit some forms to the EPFO. These forms and their purpose are as follows –

Types of forms

Purpose 

To be submitted by

Form 10C

  • To withdraw the accumulated money in the EPS corpus before completing 10 years of service
  • To avail EPS Scheme Certificate

EPS member

Form 10D

  • To avail pension after reaching 50 years of age
  • To receive widow pension
  • To receive child pension
  • To receive an orphan pension

EPS member/nominee/widow/children

Life Certificate

  • To certify that you are alive
  • The form is to be submitted annually in November to your bank’s manager from where your pension account is being operated 

EPS pensioner or guardian

Non-remarriage Certificate

  • To certify that the widow has not married
  • The form is to be submitted annually in November

Widow of EPS member

Form 11

  • To provide bank account and Aadhar card details to EPFO
  • After the UAN has been activated, you should provide a cheque of your active bank account. The cheque should contain your name, IFSC code of the bank branch and your bank account number

EPS member

Checking the balance in the EPS account

A part of your employer’s contribution is invested in the Employee Pension Scheme and you get a pension from the accumulated corpus. If during your active working life, you want to check the accumulated corpus till date, you can do so through your EPF passbook. The last column in the passbook shows the pension contribution done by your employer. You can download the passbook in soft copy through the link https://passbook.epfindia.gov.in/MemberPassBook/Login. To download, you have to enter your UAN number and password. 

Top #4 Things to remember about EPS contributions:

Here are some important points about EPS contributions which you should keep in mind –

  1. The contribution should be made by the employer within 15 days from the end of a month
  2. The administrative costs associated with EPS contributions would be borne by your employer
  3. If you are unemployed for a continuous period of two months and you have completed at least 6 months’ service, you can withdraw the entire EPS corpus even if you have not completed 10 years of service
  4. The contribution would be calculated on the basic salary plus dearness allowance 

Why should you opt for EPS?

Given other retirement oriented investment avenues available in the market, you might feel why choose EPS. Well, for starters, you have no choice in the matter. Your employer has to contribute part of your salary towards an EPS scheme if you are a salaried employee. So, if you are employed, you would have to opt for the EPS scheme. Other advantages of EPS are as follows –

  • Besides securing a pension for you, the EPS scheme also ensures that your spouse and children receive a pension in case of your death
  • The promise of lifelong pension gives you financial security in your old age when you have limited sources of income
  • The employer’s contribution are completely tax free for you. Your EPS corpus is, therefore, created without you having to part with your salary or pay taxes on your investments
  • Your pensions are created even when you do not invest yourself. Under any other retirement investment scheme you have to invest your money to create a pension. But, under the EPS scheme, your employer and the Government contribute to create a corpus for pension payments in your old age. So, opting for EPS is, in essence, free for you

Given these benefits, the Employee Pension Scheme is an ideal pension scheme for employed individuals.

The Employee Pension Scheme ensures that if you are a salaried employee you would receive pensions after you retire. The scheme promises lifelong pension and also provides your family with the necessary financial security in case of your death. So, if you are salaried, understand the concept of the Employee Pension Scheme and know when and how much pension is promised by the scheme.

Frequently Asked Questions:

  1. What would be my EPS account number?

    The EPF account number also doubles up as your EPS account number as your EPF and EPS contributions are identified by a single account number.

  2. What should I do when I change jobs?

    When you change jobs, you should transfer your EPS account to another employer so that the employer can continue depositing the contribution into the Employee Pension Scheme. To transfer your EPS account you can log into your EPF account online and apply for EPF transfer due to job change. When the EPF account is transferred, the EPS account would also be transferred automatically. The transfer would be done through a Composite Claim Form which you need to fill and submit.

  3. If the EPS member is survived by a wife and a dependent child, can both claim a pension?

    Yes, in case of death of the EPS member, both the widow and the child can claim a pension. The widow would get the widow pension and the child would get the child pension which would be 25% of the widow pension.

  4. Can I change my nominee under the EPS scheme?

    Yes, you can change the nominee whenever you want.

Top Life Insurance Plans in India 2021

Best life insurance plans in India

Life insurance is a policy which primarily covers premature loss of life. Under most life insurance policies, if you die during the selected term of the plan, the policy pays a death benefit to your family. This benefit helps substitute the financial loss that you family suffers in your absence. Life insurance policies are, therefore, a way through which you can transfer the risk of premature death to the insurance company. The insurance company promises to cover your risk of death while you pay a premium in return for the risk taken by the insurance company.

Life insurance policies play a very important role in your financial portfolio. The importance of life insurance plans can be stressed in the following points –

  • Since these plans cover the risk of premature death, they provide a sense of financial security for your family. When you buy a life insurance plan you can be assured that even in your absence your family would not suffer financially.
  • There are investment oriented life insurance plans too. These plans help in creating a corpus for your financial goals. You can choose from traditional life insurance plans which promise guaranteed returns or unit linked plans which invest in the market and give attractive returns.
  • Child plans offered by life insurance companies are ideal to plan for your child’s secured financial future. These plans, due to their coverage benefits, promise that your child would be financially taken care of even when you are not around.
  • There are retirement plans too which promise the payment of regular income after you retire so that you don’t feel any financial dilemma once your income stops.

These benefits make life insurance plans a must for every individual.

Types of life insurance policies

As is evident from the benefits of life insurance plans mentioned above, life insurance plans come in different variants. These variants include the following –

Each plan caters to a specific financial need and, therefore, can be included in your financial portfolio for different financial goals.

Let’s do a comparative analysis of the different types of life insurance plans available in the market –

Type of Plan Term Insurance Plan
Meaning The plan covers the risk of death during the policy tenure. This is a pure protection plan which usually covers only death
Salient features
  1. High levels of sum assured can be chosen for optimal coverage
  2. Premiums are the lowest
  3. Optional riders are available for enhanced protection
Coverage tenure offered 10 years to up to 35 years or above
Benefits payable Usually the sum assured is paid in case of death. There is no maturity benefit. However, under return of premium plans, the premiums paid are refunded on maturity

 

Type of Plan Whole Life Insurance Plan
Meaning The plan covers an individual for his/her whole life
Salient features
  1. Premium payments are limited up to a specific age
  2. Premiums are low and affordable
Coverage tenure offered Till the insured reaches 100 years of age
Benefits payable Death benefit is paid whenever the insured dies before reaching 100 years of age

 

Type of Plan Endowment Plan
Meaning These are savings-oriented insurance plans which also provide insurance cover
Salient features
  1. The plan can be offered as participating plan which earns bonus
  2. Guaranteed savings are created under the plan
Coverage tenure offered Usually from 10 to 30 years
Benefits payable If the insured dies during the chosen tenure, a death benefit is paid. If, on the other hand, the insured survives the policy tenure, a maturity benefit is paid

 

Type of Plan Money Back Plan
Meaning Traditional insurance plan which creates guaranteed savings and also promises liquidity through regular money backs during the policy tenure
Salient features
  1. A part of the sum assured is paid at specified intervals during the policy tenure
  2. The plan participates in bonuses which enhance the corpus
  3. In case of death the whole sum assured is paid irrespective of money back benefits already paid
Coverage tenure offered Usually from 10 to 30 years
Benefits payable Money back benefits are paid during the term of the plan. In case of death the sum assured and accrued bonuses are paid. If the plan matures, the remaining sum assured and accumulated bonuses are paid.

 

Type of Plan Unit Linked Insurance Plan
Meaning Market linked insurance plans which invest the premium in market-oriented funds and yield attractive returns
Salient features
  1. The plan allows partial withdrawals after the first five years
  2. Switching and top-ups are other flexible benefits offered
  3. Returns are not guaranteed as they depend on market performance
Coverage tenure offered Usually from 5 to 30 years
Benefits payable Higher of the fund value or sum assured is paid in case of death. On maturity, the fund value is paid

 

Type of Plan Child Insurance Plan
Meaning The plan creates a secured corpus for the child whether the parent is alive or not
Salient features
  1. The plan can be offered as a traditional plan or unit linked plan
  2. The parent or the child can be insured but the policyholder is always the parent
  3. If the parent dies, the premiums of the plan are paid by the insurance company and the plan continues to run till maturity
Coverage tenure offered Usually from 10 to 25 years
Benefits payable Death benefit is paid immediately when the parent dies. The plan, however, continues till maturity. On maturity, a maturity benefit is paid again

 

Type of Plan Annuity Plan
Meaning Retirement oriented life insurance plans which create a steady stream of annuities
Salient features
  1. The plan can be a deferred annuity plan or an immediate annuity plan
  2. Under deferred plans, you can create a corpus and then receive annuity pay-outs later on
  3. Under immediate annuity plans, annuity pay-outs commence immediately after buying the policy
  4. Spouse can also be covered to receive annuities if the insured dies
Coverage tenure offered Deferred Annuity Plans – 5 years to up to 30 years Immediate Annuity Plans – depends on the annuity option selected
Benefits payable
  1. Under deferred annuity plans, a death benefit is payable if the insured dies during the policy tenure. On maturity, 1/3rd of the accumulated corpus can be withdrawn. The remaining has to be used to avail annuities
  2. Under immediate annuity plans, annuities are paid to the policyholder lifelong

 

Type of Plan Health Insurance Plans
Meaning These policies cover specified illnesses and help individuals deal with the high medical costs associated with such illnesses
Salient features
  1. Specific illnesses are covered under the plans
  2. The benefit is paid in lump sum
  3. The benefit paid can be used for availing medical treatments or for any other financial needs
Coverage tenure offered Usually from 5 to 10 years
Benefits payable If the insured suffers from the covered illness, a lump sum benefit is paid. There is no maturity benefit under these plans

Best life insurance plans in India

Among the different types of life insurance policies available in the market you must be wondering which policy would be the best. The choice of the best life insurance policy actually depends on your financial requirements. There are different life stages of an individual and for each stage there is an ideal life insurance policy. So, let’s understand which life insurance policy would be the best at different stages of your life –

Life stage Age bracket Financial requirement Best life insurance policy
Young adult 25-30 years At this stage you are young and have just started earning. You have limited responsibilities. You are unmarried and your parents might or might not be financially dependent on you. You can, therefore, choose investment oriented life insurance plans to create funds for future liabilities. You can also invest in a term insurance plan because it is essential at every stage of life stage and when you buy young, you can save on the premium costs
  1. Term insurance
  2. Endowment/money back plans if you are risk averse
  3. Unit linked insurance plans
Young married 30-35 years At this stage you get married and start a family. Responsibilities increase and your parents might also start depending on you financially. A term insurance plan is a must along with investment oriented life insurance plans. You also need a health plan for covering against unforeseen medical contingencies.
  1. Term insurance
  2. Endowment/money back plans if you are risk averse
  3. Unit linked insurance plans
  4. Health insurance
Married with kids 35-40 years When you have kids, your responsibilities multiply. You have to provide for your family and also start planning for your children’s secured financial future
  1. Term insurance
  2. Child plan
  3. Unit linked plans if you have invested in term and child plan and have surplus disposable income
  4. Health insurance
Married with older kids 40-50 years When your kids are adults or nearing maturity, you have to start thinking about retirement planning. You might also want to create assets like investing in a house or property to create a legacy for your children
  1. Term insurance
  2. Endowment/money back plans if you are risk averse
  3. Unit linked insurance plans
  4. Deferred annuity plans
Pre-retirement 50-60 years This is the stage when you are in your late 40s or early 50s and retirement is looming on the horizon. Investment and retirement planning is your main focus at this life stage
  1. Deferred annuity plans
  2. Unit linked insurance plans
Retirement 60-65 years In this stage you are looking forward to retirement. Creating a steady source of income for your retired life is your primary financial goal
  1. Deferred annuity plans with a short term investment period
  2. Immediate annuity plans
Post -Retirement 65 years onwards When you are finally retired, you need a plan which would give you a steady source of income. You might also have to provide your spouse if you predecease them. Immediate annuity plans. Joint life annuity option can be selected to provide for the spouse.

So, you should choose a life insurance plan based on your life stage because each stage has a different requirement. When you choose a plan suitable to your life stage you can ensure that you get the best life insurance policy matching your financial needs.

Premiums of life insurance policies

As stated earlier, premium is the cost that you pay the insurance company for covering your risk of premature death and also for the different benefits that the company offers under its life insurance plans. The premiums for different individuals, however, are different. The premium charged from you might not be the same charged from your neighbour. Life insurance premiums are calculated individually for each policyholder depending on different factors.

Let’s understand what these factors are which determine the premium of a life insurance policy –

  1. Age – age is the primary factor which affects your life insurance premium. Since mortality risk increases with increasing age, premiums are higher at older ages
  2. Gender – premiums are different for males and females of the same age. Females are charged a lower rate of premium than males because they have a low mortality rate
  3. Medical history – your medical history determines your death risk. If you have some medical complications or if you had any conditions in the past, it increases the chances of death. That is why individuals with health issues are charged a higher premium than normal individuals
  4. Policy tenure – annual premiums are lower for policies which are taken for long term durations than those which have short term duration
  5. Sum assured – premium directly depends on the sum assured that you select. Higher the sum assured higher would be the premium
  6. Coverage benefits – if the plan offers better coverage benefits, the premiums would be higher
  7. Lifestyle habits – if you drink or smoke, the premiums would be higher because both drinking and smoking create health hazards which increase the chances of death
  8. Physical build – your height and weight also affect your premiums. If you are overweight or underweight it is bad for your health and might create health risks. That is why people with weight issues are charged higher premiums
  9. Occupation – there are some dangerous occupations under which there is a high mortality risk. For example, mining, aviation, adventure sports, politics, etc. are considered to be high risk occupations. Individuals engaged in these occupations are charged a higher premium
  10. Family history –if there is an adverse medical history in your family, it increases the chances of hereditary diseases. As such, premiums are higher for individuals having a family history of illnesses
  11. Riders – there are optional coverage benefits under life insurance plans which are called riders. Each rider, however, involves an additional premium. So, if you choose additional riders under the plan, your premiums would increase
  12. Discounts available – life insurance policies also allow premium discounts for different factors. If the discounts are applicable to your policy, your premiums would reduce

How to buy the best life insurance policy?

There are two ways to buy life insurance plans. These are as follows –

  • Offline – buying a policy offline means buying it from a life insurance agent or from a life insurance company. You can meet with an agent and buy the policy from him/her or you can visit the company’s branch and buy a policy from the company itself.
  • Online – nowadays life insurance companies allow you to buy a life insurance policy directly from their websites. You can visit the website of the insurance company and choose the policy that you want to buy. Then you can provide your details and pay the premiums online and the policy would be issued easily.

When talking about buying the policy online, you can also choose to buy the policy through Turtlemint. Turtlemint is an online platform which gives you various benefits of buying a life insurance policy. These benefits are as follows –

  1. You can compare before buying. Comparing allows you to check the plans offered by different companies and their comparative advantages. By comparing you can ensure that you buy the policy which has the maximum coverage benefits at the minimum premiums
  2. Turtlemint is tied up with all the leading life insurance companies in India. You can, therefore, be assured that you would get the list of best life insurance plans to compare and choose from
  3. Turtlemint allows you to get your insurance queries solved before buying the plan. If you have difficulty understanding the plans and their benefits Turtlemint’s expert executive’s guide you and help you understand all the technical aspects of the plan you are considering. You can get your queries solved and then buy the plan after understanding all its features in detail
  4. Turtlemint also helps you at the time of claims. You can contact Turtlemint’s team when you suffer a claim and the team would coordinate with the life insurance company to get speedy settlements of your claim.

Thus, buying through Turtlemint has its advantages. To buy, here are the simple steps that you should follow –

  • Visit Turtlemint at www.turtlemint.com
  • Choose ‘Life’
  • Depending on your life stage and financial requirements, choose the type of policy that you want to buy
  • Provide your details like age, gender, income, smoking habits, location, etc.
  • Provide your contact details if you want assistance in buying the policy
  • You can then check the different insurance plans on Turtlemint’s website along with their coverage benefits and premium rates
  • You can compare the available policies and choose the best as per your suitability
  • Pay the premiums and the policy would be issued at the earliest

Documents required to buy life insurance plans

When buying life insurance plans, you have to submit some documents which are required by the insurance company to verify your personal details. The documents which would be required to be submitted include the following –

  • Copy of a valid age proof like your driving license, passport, Aadhar card, Voter’s ID card, birth certificate, etc.
  • Copy of your residential address proof like utility bills of the last three months, Aadhar card, passport, lease agreement, property documents, etc.
  • Copy of a valid identity proof like your Aadhar card, driving license, PAN Card, passport, etc.
  • Recent coloured photographs
  • Income proof like your IT returns of the last three years if the premium is high
  • Medical examination report, if required under the policy
  • Any other questionnaire is required by the insurance company

These documents should be submitted with the proposal form so that the proposal can be underwritten and the policy can be issued at the earliest.

Claims under life insurance policies

Claims under life insurance policies happen under two main circumstances – if the insured dies during the term of the plan or if the plan tenure comes to an end. While in the former instance a death benefit is paid, in case of the latter, maturity benefit is paid.

Death claims are paid to the nominee who has been nominated by the insured to receive the policy proceeds on his/her death. Maturity claims, on the other hand, are paid to the policyholder himself/herself.

You would have to intimate the insurance company about death claims to get the claim settled quickly. In case of maturity claims, though, the company processes the claims itself for policies approaching maturity. Once the policy matures, the insurance company pays the maturity claim automatically.

Claim settlement ratio of life insurance companies

A life insurance company can be judged by its claim settlement ratio. The ratio measures the percentage of claims settled by the life insurance company against the total claims made upon it in a financial year. The higher the ratio the better the company is considered to be. The claim settlement ratio of life insurers is prepared and published by the Insurance Regulatory and Development Authority of India (IRDAI) after every financial year.

When comparing life insurance companies, you can, therefore, compare the claim settlement ratios of different insurance companies and then choose the best life insurance company. A higher ratio would ensure that your life insurance claims would be settled by the insurer.

So, before buying a life insurance policy, understand the different types of policies available. Then find out which policies would suit your life stage. Once you have shortlisted the policies which you need for your financial goals, compare the available plans. Choose a plan which gives you the best coverage benefits at lowest premiums and get yourself insured.