Many employers start with a simple goal: Buy insurance for employees to create a robust and satisfied workforce. It is easy to assume that this means just a basic group health policy, until questions on taxes, payouts, and ownership start creating confusion.
This confusion will subside if you separate the setup from the product. Group health insurance is the product, the health cover for your whole team that pays for the hospitalisation and medical bills. Employer employee insurance is the setup. The master insurance framework that enables the company to fund the policy, pay the premium as a tax-deductible expense, and ensure that the employees and their dependents receive the adequate benefits.
Once a business understands this framework, protecting employees becomes both simple and financially smart. Here's how this framework works, the policies that sit under it, and how it safeguards both your company's money and your team's health.
What Is Employer Employee Insurance?
Employer employee insurance is an umbrella plan under which a business purchases health, life, and personal accident policies for its employees. Companies typically deploy this framework through three main coverages which are group health insurance (GHI), group term life insurance (GTLI), and Group personal accident (GPA) for disability coverage.
The structure creates mutual benefits for both parties. Employees get access to financial and health safety nets without paying individual premiums, while employers create a higher satisfaction workforce, talent retention, and claim the premium expenses as tax deductible operational cost.
Tax Treatment of Employer Employee Insurance
Understanding how employer employee insurance creates tax benefits requires looking at how premiums, policy transfers, and payouts are handled under Indian tax laws. Both employers and employees can leverage the tax benefits of group health insurance to maximize savings under Section 37 (1) and Section 80D.
1. Section 37 (1) Deduction Mechanics
According to Section 37 (1) of the Income Tax Act, 1961, any expenditure borne wholly or exclusively for business or professional purposes can be claimed as an allowable business expense.
- Corporate Tax Saving: The premiums that are paid by the employer for an employer employee policy is treated as an operational business expense. This directly reduces the company’s net taxable profits.
- Condition for Exemption: For the tax department to consider this under Section 37 (1), the policy should serve as an employee benefit rather than an asset or investment held by the employer just for the purpose of corporate gain.
2. Assignment vs Endorsement Structures
How the policy is legally structured determines to whom it belongs and when tax perks can be availed:
| Feature | Assignment Structure | Endorsement Structure |
|---|---|---|
| Primary Concept | Legal transfer of the policy ownership from the employer to the employee | Modification of an existing master policy to add or remove employees or adjust coverage details |
| Policy Ownership | Shifts from the employer to employee after a mandatory lock in period | Remains with the employer for the entire term |
| Applicable Policy Types | Individual Life, Endowment, ULIP, or Keyman-to-Employee transition policies | Group Health Insurance (GHI), Group Term Life (GTL), and Group Personal Accident (GPA) |
| Process | Requires executing a legal Deed of Assignment stamped on the physical policy document | Executed through an Endorsement Note issued by the insurer to update the active employee list |
| Impact on Departure | The policy belongs to the employees so they can make the decision to keep paying premiums or cash it out | The departing employee is simply removed or endorsed out. |
| Primary Goal | Serves as a long term incentive or deferred reward for key talent | Serves as a standard flexible health and life benefit for the workforce |
3. Taxability of Policy Proceeds
Tax implications differ based on the type of coverage and nature of the payout:
1. Group Health Insurance (GHI)
- Medical Claims: All claims payout whether cashless or reimbursement are treated as non taxable indemnities. Since this payout only covers actual health expenses, they are not considered taxable income.
2. Group Term Life Insurance (GTLI)
- Death Benefits: Sum assured amount received by the employees’ family or nominee upon their death is 100% tax free under Section 10 (10D), Irrespective of the premium.
- Maturity Benefits: If the insurance has maturity payout, the money received by the employee is tax free under Section 10 (10D), if the annual premium stays under standard legal limits (usually up to 10% of the total cover.)
3. Group Personal Accident (GPA)
- Disability and Accidental Death Benefits: Any payout subject to accidental death, lost limbs, or physical disability are treated as non taxable income. The employee or their family receives the entire payout tax free.
Types of Employer Employee Insurance
1. Group Health Insurance
Employer employee health insurance is a type of company sponsored plan that covers medical emergencies and hospitalization costs for its employees and their families.
Employers select and fund tailored health insurance plans offering varied coverage options, premiums and deductible options based on their business budget.
2. Group Term Life Insurance
An employer employee group term life insurance is a company sponsored benefit where an employer offers financial protection to the employees’ families in the event of their death. The employer selects a life insurance policy or policies to offer to its employees.
This can vary depending on factors such as the size of the company, budget considerations, and the preferences of the employees.
3. Group Personal Accident
Employer employee group personal accident cover provides coverage to employees and their families in case of accidental death, dismemberment, partial or complete disability. Coverage can include both short-term and long-term disability, depending on the policy terms.
Employer employee group personal accident cover is a valuable benefit that provides financial protection to employees in case of a disability, helps retain talent, and offers tax benefits to both employers and employees.
Eligibility for Employer and Employee Insurance
The eligibility criteria for employer employee insurance schemes vary based on the insurer and the specific policy details. However, here are the general eligibility parameters:
Employer eligibility
- Any business entity, including sole proprietorships, partnership firms, private and public companies, with any number of employees can purchase employer employee insurance.
- Employers must have a financial relationship with their employees, such as paying monthly salaries for their services.
Employee eligibility
- Employees covered under the policy must be legally employed and fall within the age range of 18 to 60 years.
- Employees must be under a legal contract to receive a monthly salary for their services to be eligible for coverage under the scheme.
- The scheme may extend coverage to family members of employees, including dependent parents, children, and spouses, based on the policy terms.
Benefits of Employer Employee Insurance for the Employer
The employer employee insurance scheme offers several key benefits for employers:
1. Retain existing employees
By providing comprehensive insurance coverage, employers can make their employees feel valued and secure. This helps increase employee retention rates as they are less likely to leave for another company.
2. Attract new talent
Most professionals prefer working for companies that offer benefits like health insurance. Providing this coverage can help employers attract top talent and stand out from competitors.
3. Tax benefits
Premiums paid by employers for employee group health insurance are tax-deductible as a business expense under Section 37(1) of the Income Tax Act. This provides significant tax savings.
4. Increase productivity
Knowing they have insurance coverage gives employees peace of mind. This can lead to higher morale, job satisfaction and productivity, as employees can focus on their work without worrying about medical costs.
5. Promote healthy lifestyles
Employer-sponsored group health insurance encourages employees to prioritise their health and seek preventive care. This can result in a healthier workforce that takes fewer sick days.
Benefits of Employer Employee Insurance for Employees
The employer employee insurance offers several key benefits for employees:
1. Financial protection
The most significant benefit is the financial protection provided to employees and their families in case of medical emergencies, accidents, or untimely death of the employee.
2. Comprehensive coverage
Employer employee insurance typically includes coverage for medical emergencies, hospitalisation, accidental injuries, and in some cases, even the employee’s family members like spouse, children, and dependent parents.
3. Tax benefits
If employees contribute towards the premium, they can claim tax deductions under Section 80D of the Income Tax Act. Additionally, the maturity proceeds of the insurance policy are tax-exempt under Section 10 (10D).
4. Increased job satisfaction
Employer-sponsored insurance encourages employees to prioritise their health and seek preventive care. Many insurance plans also offer wellness benefits like fitness tracking apps, discounts on medicines, etc. which promote a healthier lifestyle.
Conclusion
It’s important to know the difference between standard group health and a dedicated employer employee insurance plan. Understanding this can help you make better choices. It’s a strategic tool that links an employee’s monthly paycheck to long-term financial safety.
Choosing the right plan helps businesses protect valuable assets. At the same time, employees get important coverage they may not have found on their own. Employers protect their most valuable asset, their workforce, while employees gain life cover, accident protection, and tax savings they might never have secured on their own. It's a genuine win-win.
Creating a comprehensive benefits package can be simple and affordable. At Onsurity, we’ve changed employee healthcare. Instead of strict, traditional policies, we offer a flexible monthly subscription model. This model will fit your business perfectly.
No matter if your team has 3 or 300 members, our platform lets you offer great benefits. These include group health insurance, teleconsultations, and fitness rewards, starting at only ₹145 per month. Stop struggling with insurance jargon. Protect your team with a plan that grows with you.
Ready to transform your workplace benefits? Get a Quote from Onsurity Today.
FAQs
1. Who owns the policy?
In an employer employee insurance policy, the employer is the policyholder who pays for the premium while the employee is the ultimate beneficiary or insured person.
2. What happens when the employee leaves?
When an employee leaves the company, their insurance coverage with the employer ends typically on the last working day. However, according to IRDAI guidelines, employees that are leaving also have the option to port or convert their corporate cover into an individual health insurance under the same insurer.
3. Is the payout taxable?
Yes, but it depends on the payout type. Death benefits and medical reimbursements are 100% tax-free. Maturity benefits received by the employee are also tax free under Section 10 (10D). But any surrender value received upon the employee leaving the company is taxable as “profit in lieu of salary”.
4. How is employer employee insurance different from Keyman insurance?
Keyman insurance pays the death benefit to the company. This helps cover financial losses. Keyman insurance is a type of business insurance. In employer employee insurance, the death benefit goes straight to the employee’s nominee. This is a personal welfare benefit. It provides employees with comprehensive benefits. Both employers and employees enjoy tax advantages.
5. Who can buy employer employee insurance?
Any legally registered entity can buy this for their active employees. This includes sole proprietorships and partnerships. It also covers private and public companies. They must meet the minimum number of employees.. It helps provide financial security.
6. What is Section 37(1) employer employee insurance?
Under Section 37(1) of the Income Tax Act, employers can treat premiums for employee insurance as a business expense. The company can deduct the premium from its taxable income if the expense is solely for business.
7. What is the insurance for employee benefits?
This refers to different insurance products. Employer employee insurance, or group insurance, is coverage given by employers to their employees. It includes group health, life, and personal accident insurance. A company offers these to its employees. These benefits aim to improve employee retention, morale, and financial stability.
8. What does company insurance cover for employees?
Depending on the plan, it usually covers:
a) Health Insurance
b) Accidental disability
c) Life cover (death benefits)
Some plans also include “extras” like maternity, dental, or critical illness riders.
9. Is employee insurance mandatory?
In India, employee insurance is legally required for staff earning up to ₹21,000 per month through the government’s ESIC scheme (for establishments with 10+ workers) and for high-risk industries under the Employees' Compensation Act. For employees earning above this wage cap, insurance is optional by law, though offering it is standard industry practice for attracting talent and reducing financial exposure.
10. What is employer employee insurance under the Income Tax Act?
It is a structure where the employer pays premiums for an employee’s policy. The law allows employers to deduct these premiums as a business expense. For employees, the tax treatment varies by policy type. It can be a tax-free benefit or a taxable perk.
11. Are insurance premiums paid by the employer taxable?
Yes, employer-paid insurance premiums for employees are usually a business expense. They are tax-deductible under Section 37(1) of the Income Tax Act. This insurance offers benefits to both employers and employees, providing financial security and tax advantages.
12. What are the benefits of employer employee life insurance?
It gives the employee’s family a financial safety net at no cost. This also helps the employer attract talent. It also provides tax deductions for the company. Plus, it offers high-value coverage without needing individual medical exams.
13. What is Scheme B in employer employee insurance?
Scheme B in employer employee insurance is contributory. Here, the employee is both the proposer and policyholder. The employer typically pays the premium, which is often seen as a business expense. It offers flexible policy types, not just term plans. Benefits go directly to the employee’s nominee.
