New Group Leave Encashment Plan by the Life Insurance Corporation of India (LIC) is a variable insurance product for companies and business owners who employ a workforce.
The plan meets the liability for providing leave encashment to employees and also offers life cover to recompense the employer for the death of an employee. The policy has to be taken in the name of the employer or the trustees of a company.
To be able to secure a group leave encashment plan, the employer has to meet the following criteria:
Minimum age | 18 years |
Maximum age | 75 years |
Maximum age at renewal | 80 years |
Minimum group size for existing scheme | No limit |
Minimum group size for new scheme | 10 |
Maximum group size | No limit |
The LIC New Group Leave Encashment Plan comes with some attractive features. Here's a list for easy reference:
Plan type | Non-linked, non-participating, fund-based variable insurance plan |
Policy account | Single account for all employees coming under the group scheme |
Policyholder | Employer/trustees |
Policy/premium payment term | Annual, renewable |
Minimum contribution | The total amount required to provide Leave Encashment Benefit as per AS-15 (Revised), a minimum of Rs. 10,000 at the time of inception of policy, total mortality charges and other applicable charges per year. |
Maximum contribution | No limit. |
Minimum sum assured | Rs. 1,000 |
Cooling-off period | In case of objection the policyholder can return the Master Policy within 15 days |
Loan on policy | Not available |
Bulk exits | If the amount to be paid on total exits (a member leaving the group) is more than 25% of the total scheme fund at the beginning of the year, it will be considered as a bulk exit. If the withdrawal amount is more than 25% of the total policy account value at the beginning of the policy year, it will be marked as bulk exit. |
Surrender Value | You can surrender the policy by giving an advance notice of 3 months. Guaranteed Surrender Value will be available on surrender, only on leave encashment and not on the life cover. However, the LIC may pay a Special Surrender Value if you are okay with it. |
By enrolling in LIC's New Group Leave Encashment Plan, the employers can avail the following benefits:
When an employer buys an LIC New Group Leave Encashment Plan, they are insuring themselves against leave encashment (through resignation or retirement) or death of their employees. Apart from the contributions (premiums) paid to the LIC as per the policy requirements, the policyholder also has to pay several other charges (which are explained in detail later in this article).
Each policy account has a shadow account that is maintained on a daily basis. The numbers in this account are based on the actual accruals of all income elements for the LIC, and the actual debits such as partial withdrawals made on the policy account value. From the fifth year of the policy, the actual gross investment return and reduction in yield is calculated based on this. Given below is the table of maximum reduction in yield, which is one of the factors influencing the Residual Addition on the policy account.
No. of years since inception | Maximum Reduction in Yield annually (Difference between Gross and Net Yield) |
5 | 4.00 % |
6 | 3.75 % |
7 | 3.50 % |
8 | 3.30 % |
9 | 3.15 % |
10 | 3.00 % |
11 and 12 | 2.75 % |
13 and 14 | 2.50 % |
15 and above | 2.25 % |
Size of Policy Account Value of the Scheme | FMC per annum |
Initial amount up to Rs. 1 crore | 0.50% |
On subsequent amount above Rs. 1 crore but less than or equal to Rs. 5 crores | 0.45% |
On subsequent amount above Rs. 5 crores but less than or equal to Rs. 25 crores | 0.40% |
On subsequent amount above Rs. 25 crores but less than or equal to Rs. 100 crores | 0.35% |
On subsequent amount above Rs. 100 crores but less than or equal to Rs. 200 crores | 0.30% |
On subsequent amount above Rs. 200 crores but less than or equal to Rs. 400 crores | 0.25% |
On subsequent amount above Rs. 400 crores but less than or equal to Rs. 800 crores | 0.20% |
On subsequent amount above Rs. 800 crores but less than or equal to Rs. 2,000 crores | 0.15% |
On subsequent amount above Rs. 2,000 crores | 0.10% |
The LIC can evoke Compulsory Termination of the policy if at any point of time, the policyholder's account value is inadequate for the relevant charges. If this happens, the balance amount in the account is refunded to the policyholder.
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