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Employee Retention PlanEmployee Retention PlanEmployee Retention Plan
Employee BenefitsEmployer-Employee Retention Plan

Employee Retention Plans are also called Employer-Employee Plans. These are intelligently designed plans which create a win-win for the employer and the employee. The Plan allows Employer to retain its important employees. The Employee is rewarded for his loyalty.

What is Employer - Employee Plans?

Employers have an insurable interest in the lives of his employees. In view of this we can allow life insurance cover for employees where the premiums are paid by the employer. This is however subject to complete satisfaction of the insurance company of the absence of any moral hazard.

An employer employee relationship would be established where the employee earns a salary from the employer. The insurance policies can be taken for all employees or for a class of employees. The employer may or may not be the Proposer under the policy.

The main reasons for the employer to have his employees lives covered are:

  • As a reward for good service to a select band of employees.
  • As an encouragement for continuation in the service.
  • As a welfare measure and provision for his old age/ dependents.

The basic difference between the Employer Employee Scheme & the Keyman Insurance is that in the former the Employee or his nominee is the beneficiary whereas in the latter the beneficiary would be the Company.

Who are Eligible for Employer - Employee Scheme?
  • Any employee other than ‘Keyman’, who does not have beneficial ownership in the employer entity in excess of 5%. For ascertaining the limit of 5%, shareholding or ownership held by concerned employee, his/her spouse, children, son-in-law, daughter-in-law, parents, brother or sister should be aggregated together.

    The most common employer employee relationships are:

  • A sole proprietorship as the employer where the employee (other than the sole proprietor) is any employee of the sole proprietorship.
  • A partnership firm as the employer where the employee (other than a partner) is any employee of the partnership form.
  • A corporate as the employer where the employee is any employee of the corporate.
  • Any other legal entity as the employer and its employees.
What are the New Undertakings the Employer has to Provide?

The employer should give the following undertakings under the deferred assignment option:

  • That he will compulsorily assign the policy at the end of 4 years, if it has not resulted into a claim or surrender already.
  • In the pre-assignment period:
    • That he will pass on the death benefits to the legal heirs of the employee.
    • That he will not surrender the policy except when the employee leaves the company.
    • That he will forego the rights to partial withdrawal under the policy.
    • That he will not assign the policy to any other party during the pre-assignment period.
What are the Different Options Available to the Employer?

The employer is the proposer under the policy and assigns the policy at the inception.
  • The proposal form has to be signed by an authorized signatory of the Employer along with the seal or stamp of the entity.
  • A letter on the entity's letterhead signed by the sole proprietor or the managing partner or the authorized signatory or the governing body stating the following:
    • The fact that they have opted for the employer-employee scheme & will be paying premiums on behalf of the employee.
    • The authorized signatories who can sign the documents on behalf of the employer along with the specimen signatures of the authorized signatory.
    • The names of the employees to be covered along with the Plan type, Term, Sum assured, & the riders.
    • The assignment form duly filled in and signed by the authorized signatory making an assignment in the name of the employee should be collected at the proposal stage.
    • The nomination form duly filled in and signed by the employee making a nomination should be collected at the proposal stage.
  • The policy document will be dispatched to the employee after the policy is assigned in the favour of the Life assured & the nomination should also be recorded.
The employer is the Proposer under the policy and retains the right to assign the policy (deferred assignment).
  • The proposal form has to be signed by an authorized signatory of the Employer along with the seal or stamp of the entity.
  • A letter on the entity's letterhead signed by the sole proprietor or the managing partner or the authorized signatory or the governing body stating the following:
    • The fact that they have opted for the employer-employee scheme & will be paying premiums on behalf of the employee.
    • The authorized signatories who can sign the documents on behalf of the employer along with the specimen signatures of the authorized signatory.
    • The names of the employees to be covered along with the Plan type, Term, Sum assured, & the rider.
  • The policy shall be assigned to the life to be assured at the earliest as per the agreement between employee & employer. A separate letter from the employer, stating the object of insurance & timings or conditions of assignment of the policy should be obtained with the letter form the basis of the contract.
  • The restrictions imposed by the employer should be reasonable .Normally these should not go beyond 4 years from the date of policy in any case.
  • The policy document will be dispatched to the employer.
  • After the stipulated period is over, the employer has to initiate the process of assignment of the policy to the employee.
  • If the Employee leaves the company or the Employer does not want to pay the Premiums, the Employer should intimate to the Insurance Company.
The employee is the Proposer on his own life but the premiums have been paid by the employer (third party cheque).
  • If this option is selected then the proposal will be sent together with a letter from the employer that the premiums under the policy is paid by the employer.
  • If this option is exercised, then no further assignments or any action is required on the part of the employer, apart from payment of premiums.
  • The policy document will be dispatched to the employee.
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