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All you wanted to know about Employees’ Deposit Linked Insurance

Satya Sontanam | Updated on May 04, 2021

This life insurance scheme covers all active members of the employees’ provident fund.

The Employees’ Provident Fund Organisation (EPFO) recently hiked the death insurance benefits for subscribers under the Employees’ Deposit Linked Insurance (EDLI) scheme. The minimum death cover has been increased to ₹2.5 lakh effective retrospectively from February 15, 2020. The maximum benefit under the scheme has also been hiked to ₹7 lakh from ₹6 lakh. These new limits will be in effect for three years from April 28, 2021.

What is it?

To provide income security to the family of a private sector employee after his/her death, the government introduced the Employees’ Deposit Linked Insurance Scheme in 1976. This life insurance scheme covers all active members of the employees’ provident fund. For availing the insurance cover, employees need not contribute any amount. It is supported by a nominal contribution by the employer. If you have not heard about the EDLI scheme, that could be because your organisation has opted out of it.

The Employees’ Provident Fund Act, 1952 allows some organisations to opt out from the EDLI scheme provided they meet some conditions. If companies choose life policies for their employees from other insurers that are more attractive than the EDLI, employees of such establishments, without any separate contribution or payment of premium, can enjoy those benefits without the EDLI. Firms that opt for group term insurance plans tend to opt out of the EPFO’s EDLI Scheme.

Why is it important?

On the unfortunate event of death of an employee who is a member of the EDLI scheme, family members receive assured benefits. The benefit under this scheme is based on the monthly wages (basic + dearness allowance) and/or the average balance in the member’s PF account, subject to minimum and maximum limits. Monthly wages here are capped at ₹15,000.

As per the recent amendment, the benefit is calculated by using the following formula: (Average monthly wages drawn during the preceding 12 months*35) plus (50 per cent of the average PF balance during the last 12 months, subject to a ceiling of ₹1,75,000). Irrespective of the formula, the minimum benefit will not be less than ₹2,50,000, if the employee has continuously worked for 12 months.

Say, the average monthly wages of the employee in the 12 months preceding his death is ₹20,000 and the average PF balance in this period is ₹2 lakh, the benefit in this case will be ₹7 lakh (₹15,000*35 + ₹1,75,000). The figures in the above formula – 35 times, ₹1.75 lakh and ₹2.5 lakh were earlier 30 times, ₹1.5 lakh and ₹2 lakh respectively. The benefits under the scheme will be payable to the nominee mentioned by the employee. If no nomination is made, his spouse, unmarried daughters and minor sons will be beneficiaries.

Why should I care?

While nothing can replace the loss caused due to the death of a loved one, monetary support would help meet the immediate financial needs of the family, especially if the deceased is the bread winner. Once all the documents such as Form 5 IF, death certificate and copy of a cancelled cheque are provided and the claim is accepted, the EPFO will settle the claim within 30 days.

If you are the sole income producer of the family, though, you need to note that the cover being provided by EDLI may be quite inadequate to see your family through its living expenses and other goals in your absence. Usually, experts advise having a life cover equal to 10 times your annual income.

The bottomline

Every little bit helps in these grim times.

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Published on May 03, 2021

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