HR Services1

HR Services1

Saturday, 20 April 2013

Insights of EDLI-Employee's Deposit Linked Insurance Scheme


















What is EDLI?


EDLI means “Employees’ Deposit Linked Insurance” which is a part of Provident Fund scheme and provides a lump sum payment to the insured person’s nominated beneficiary in the event of death due to natural cause, accident or illness.

Every employer pays certain amount to PF for insurance of its employees which is as follows:

EDLI Account              :  A/c No. 21 :  0.5% of Basic capped at Rs 6500/-
EDLI Admin Account   : A/c No. 22  :  0.01% of Basic capped at Rs 6500/- 

For more information read post PF Fundamentals everyone should know.

Above contribution is other than 12% of Basic contributed by employer and there is no contribution which is made by employee in this scheme. Every employee who is member of PF gets covered under this scheme and his nominated beneficiary get lump sum amount in case of employee’s death. EDLI cover applies across globe and 24 hours which means employee’s family will get claim even if death is not during working hours.

Calculation behind deciding amount of claim to deceased family


OLD METHOD


Before 08th January 2011, following method was used to decide claim amount. Let’s call it “Old Method”

“An amount, equal to the average balance in the account of deceased during preceding 12 months or during the period of his employment whichever is less, except where the average balance exceeds Rs 50,000/-, the amount payable shall be Rs 50,000/- plus 40% of the amount in excess of Rs 50,000/-subject to maximum of Rs 1,00,000/-“

Example : An employee, ABC, joined an organization on 01st August 2010 and died on 20th February 2012. His basic salary at the time of joining was Rs 6000/- and has been increased to Rs 7000/- wef 01st April 2011. His average PF balance in last 12 preceding months is Rs 1,20,000/-

As the average of PF balance in last 12 preceding months is more than Rs 50,000/-.

Rs 50,000 + 40% of Rs 50000/- (As max limit is 1,00,000) = Rs 50,000 + Rs 20,000/- = Rs 70,000

Amount paid to nominee will be Rs 70,000


NEW METHOD


On 08th January 2011, Central Government has amended the method of calculation of benefit under EDLI scheme where a new method was introduced to calculate benefit. Final benefit to nominee will be whichever is maximum i.e. benefit as per old or new calculation method.  Idea was to give maximum benefit to deceased nominee. 

Also limit of maximum benefit payout has been increase to Rs 1,30,000/-. Click here to download the notification.

Calculation process as per NEW METHOD is as below:

“The average monthly wages drawn (subject to maximum of Rs 6500/-) during the 12 months preceding death of employee should be multiplied by 20 times”

Example : :Lets take the same example above and find out benefit to employee under new calculation method.  An employee, ABC, joined an organization on 01st August 2010 and died on 20th February 2012. His basic salary at the time of joining was Rs 6000/- and has been increased to Rs 7000/- wef 01st April 2011. His average PF balance in last 12 preceding months is Rs 1,20,000/-

Average salary of last 12 months : (6000 x 2 + 6500 x 10) /12 = 6416

Explanation : In Feb and Mar 11 his basic was 6000 and wef April 11 is basic was 8000 (we will cap it at 6500)

Multiply average with 20 times : 6416 x 20 = 1,28,320/-

As per new method benefit is  :  Rs 1,28,320/-
As per old method benefit is :  Rs 70,000/-


Higher in both methods is Rs 1,28,320/- hence this will be paid as lump sum benefit to nominee of deceased. 

EDLI benefit through insurance company


There is no restriction to employer to contribute in EDLI through RPFC provided employer has taken other insurance policy to give benefit to nominee of employee in case of employee’s death. Benefit through insurance policy should be better than benefits provided by RPFC in EDLI. Sum insured of insurance policy can not be less than maximum capping provided by EDLI i.e. 1,30,000/- as on date. In case EDLI make changes in maximum benefit capping and increase it then employer also need to increase sum insured in insurance policy (if existing sum insured become less due to the changes in EDLI ruling). 

There are many insurance companies which provide such type of insurance policy to corporate for its employees eg LIC, Max insurance etc.

There are some benefits associated with taking insurance policy in place of EDLI. Some of them are listed below.


  • Premium paid to insurance company is lower as compared to contribution paid to RPFC for EDLI. Hence it is direct cost saving for the company.
  • Nominee of employee gets fixed sum insured irrespective of number of working days and contribution in PF or EDLI.
  • Processing of claim is faster as compared to EDLI. Formalities are also less.
  • Claim processing is hassle free.
  • Premium paid by employer is treated as normal business expense for the purpose of income tax.
  • Also, employer has flexibility to choose other benefits for employees in same insurance policy like double sum insured in case of accidental death etc, with little increase in premium.


Process of taking EDLI from Insurance company

Following is flow of activities which you need to do while opting for EDLI exemption:
  • Find an insurance company which gives policy on basis of which you can file application in RPFC for EDLI exemption.
  • Many insurance companies, especially private player, will allocate you a relationship manager, who will guide and help you to file your application to RPFC. 
  • Employer need to intimate employees about shift from EDLI to private insurance company along with benefits of doing so.
  • Apply to RPFC along with required documentation for exemption from EDLI. You need to attach copy of insurance policy you have taken.
  • You can stop giving EDLI contribution i.e 0.5% of Basic caped at 6500/-, to RPFC from the month you file the application to RPFC but you still need to contribute EDLI admin charges i.e. 0.01% of Basic, capped at 6500/-.
  • You need to fill and submit Form 7IF on monthly basis and submit to RPFC.  Click here to download the format.

Please add any other information related to EDLI. Also you can visit HR SUCCESS Forum to post your queries and get answers.


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17 comments:

Raj Kumar said...

Excellent insight notes.

Raj Kumar said...

Hi Sir,

Can u explain in detail how to calculate Loss of Pay.

Govind Negi said...

Dear Raj,

Request you to visit HR SUCCESS Forum for your queries. www.hrsuccesstalk.com

Anonymous said...

sir
how will you calculate the average salary of last 12 months if an employee had worked only for
6 months . please help me to calculate the average salary if basic is 4000.

Govind Negi said...

In that case take 6 months average salary.

Anonymous said...

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Anonymous said...

Hello Sir,
Please tell me what is this capped at Rs.6500/-?

Govind Negi said...

Dear Friend,

I am not too sure about your question. But if you want to know what do capping of 6500 means in PF act then you can refer my blog post on PF Fundamentals.

Bandana Mohanty said...

Great job done. Early i was very confused regarding this calculation but now my doubt is clear. Thanks a lot.

Govind Negi said...

Dear Bandana, Happy to know that it helped you

Jenny Dsouza said...

Great information you have shared about the Travel Agents

MAHENDRA BHADU said...

is edli applicable to banks having self managed pf trsut

Anonymous said...

is amount received from EDLIS scheme taxable
?

Govind Negi said...

It is not taxable

Shiva said...
This comment has been removed by the author.
Shiva said...

Dear Govind Negi,

Your comment says we need to take 6 months salary if the person does not work for 12 months (died in an accident).

But when we applied for EDLI, PF office rejected the same saying the deceased person was worked for less than a year and hence could not process.

Working period: Dec'12 to Jul'13.
Basic: 2593 per month

Please advice & share me our contact number as well. Thank You!

Siva

R W Employee Benefits said...

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