A group term life insurance scheme is a type of group insurance plan that pays out death benefits to an employee's nominee under employer-employee scheme. In the event of an employee's death, whether by accident or natural causes, the nominee would receive the lump sum insured under the plan.
An employer decides to invest a specific amount of money in order to cover the organization's gratuity liability. If the employer chooses unit linked group gratuity scheme, then such sum is invested in a variety of market-linked funds to help earn returns. This lump sum amount is then used to pay gratuity claims for employees who leave the organization. This may or may not offer life cover benefit to the employees depending on the terms of the scheme
Charges Applicable to Unit Linked Group Gratuity Schemes
1. Charges for Fund Management
One of the major charges associated with group gratuity schemes, fund management charges are applicable as a percentage of the total value of assets. It is calculated as a percentage of the total fund value annually and is appropriated post adjusting the Net Assets Value.
In accordance with regulations issued by the Insurance Regulatory and Development Authority (IRDA), the current cap on fund management charges in respect of each of the segregated fund is 135 basis points. Please note that the maximum Fund Management Charge shall be declared by the Authority from time to time.
2. Charges for Premium Allocation:
Premium allocation charges are those charges that are levied by the insurance company to cover its miscellaneous costs and expenses, including underwriting expenses, distributor fees, etc. The premium allocation charges are recovered from premium amount paid by the client to offset these expenses incurred.
3. Mortality Charges:
A mortality charge is levied by the insurance company towards cost of life cover in case of death of the insured individual if the scheme provides for life cover. The mortality charge is determined by the insurer upon assessing the insured individual’s life expectancy based on their age, health conditions, and gender. The mortality charge is used by the insurer for providing the life cover if the person does not survive the policy term.