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  • LIC New Group Leave Encashment Plan

    LIC Life Insurance

    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.


    Eligibility Criteria for LIC New Group Leave Encashment Plan

    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

    Features of LIC New Group Leave Encashment Plan

    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.

    Benefits of LIC New Group Leave Encashment Plan

    By enrolling in LIC’s New Group Leave Encashment Plan, the employers can avail the following benefits:

    • Interest rates: The policy comes with a Minimum Floor Rate (MFR) of 0.50% per annum. MFR is a guaranteed interest rate that can be earned during the policy term. The LIC also declares a non zero-positive Additional Interest Rate for the policy accounts every financial quarter. After the fifth year of the policy, the corporation may also declare a non zero-positive Residual Addition for the policy account at the end of each policy year. The residual addition is dependent on the gross investment yield of the policy account, its actual yield, and the yield referred in the maximum reduction in yield in that duration (as prescribed by IRDA).
    • Policy cover: If a group member dies while in service, the employer gets the sum assured as well as the leave encashment benefit. If the group member retires or resigns from work, the employer gets the leave encashment benefits.
    • Guaranteed Surrender Value (GSV): GSV would be equal to 90% of the total contributions paid (net of Mortality Charges and Policy Administration Charges deducted until the time of surrender) except the benefits paid since the policy commenced.
    • Special Surrender Value (SSV): SSV is equal to the policy account value on the day of surrender, after deduction of the applicable surrender charges and Market Value Adjustment.

    How It Works

    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 %

    Charges applicable on the policy

    • Mortality charges: Mortality Charge is the amount required to provide life cover benefits to the group members as per scheme rules. These charges – total for all the members included in the policy – will be deducted from the policy account value every month, in advance. The charges depend on the number of members in the group, mortality experience and risk profile including the occupation.
    • Policy Administration Charges: LIC charges Rs. 0.15 per Rs. 1,000 of the total life cover benefit under the policy as Policy Administration Charge annually. This charge is deducted from the policy account every month in advance.
    • Fund Management Charge (FMC): FMC is deducted from the policy account value at the end of each quarter or at the time of exit. This depends on the daily policy account value during that quarter. The FMC depends on the size of the policy account value of the scheme, and are as given below:
    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%
    • Market Value Adjustment (MVA): MVA will be applied at the time of bulk exits and complete surrender of policy, and will be deducted from the policy account value. It is applicable on withdrawal amount that is more than 25% of the policy account value. It depends on the market value derived from the revaluation of assets at the time of exit or surrender.
    • Surrender Charges: If you surrender the policy within 3 years from the date of commencement, a surrender charge of 0.05% of the policy account value will be deducted. The maximum surrender value applicable is Rs. 5,00,000. If the policy is surrendered after 3 policy years, there will be no surrender charge.
    • Service Tax Charge: Service tax will be charged on the policy as applicable.
    • Revision of charges: LIC can revise the Fund Management Charges and Policy Administration Charges any time of the year, after getting approval from IRDA. The maximum FMC permissible is 1% annually, and the maximum PAC chargeable is Rs. 0.30 per Rs. 1,000 per annum at the rate of Rs. 500 per member. The policyholder will be given a month’s notice when the charges are changed. If the policyholder does not accept the revised charges, they can withdraw the policy, which will not be considered as a surrender.

    Riders

    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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