The Employees’ Deposit Linked Insurance Scheme (EDLI) is provided by the EPFO. The EPFO new rule talks about an increase in the upper limit of the death claim to Rs 7 lakhs. In this blog, I have given a very detailed explanation of this change, and how it affects you and your employees. I have covered,
- Background of the EPFO New Rule for the death insurance scheme
- What changes did the EPFO make in the EDLI scheme recently?
- How do these changes affect you?
- Does the employer or employee contributions to the scheme?
Background of the EPFO New Rule for the death insurance scheme
The Employee Provident Fund (EPF) is a savings tool for the workforce. The Employee Provident fund Organization (EPFO), is run by the Labour Ministry. The former manages the provident fund of around five crore employees. It basically allows your employees as well as you, the employer to contribute a certain amount of income towards the employee’s savings. Under the EPF scheme, the employee has to contribute a certain percentage of his income. The employer contributes the same amount. This lump sum along with the interest earned is given to the employee after retirement or after 2 months of leaving the job.
With respect to life insurance, however, the employee does not need to contribute or put away any amount. The contribution is made by you, the employer.
Eligibility and the EDLI scheme
All employees who subscribe to the EPF scheme are automatically enrolled in the Employees’ Deposit Linked Insurance (EDLI) scheme. Also, any employee who is a part of your company’s provident fund is eligible and can apply for the EDLI scheme. This is applicable so long as the employee is within the age group of 18 to 85 years.
As of last year, they had also included those who worked at multiple organizations during the course of the 12 months before their death in the policy. Up until before September 2020, employees who did not work at the same organization for a year before their death was not included in the scheme.
Initially, the life insurance i.e. death claim had a lower limit of rupees 2 lakhs. In the year 2018, the Labour Ministry issued a hike in this lower limit to rupees 2.5 lakhs. The EPFO implemented this change on the 15th of February 2018 for a period of 2 years, i.e. it expired on the 14th of February 2020. The upper limit had so far always been at Rs 6 lakhs. So what are the most recent changes for EPFO New Rule? Read on to find out.
What changes did the EPFO New Rule make?
The Covid-19 cases have increased drastically with the second wave, causing havoc. As a result, the EPFO, which is run by the Labour ministry has decided to increase the upper limit of the death insurance as well. Now, the upper limit is rupees 7 lakhs. This will work as a huge benefit for everyone. They have also issued a continuation in the change that took place with the lower limit.
Initially, the lower limit of Rs 2.5 lakhs was implemented for only 2 years. But now, a continuation has been put in place. The lower limit, which is confirmed to be at 2.5 lakhs is deemed to be in effect since February 2020. While the change in the lower limit is coming with a retrospective effect, the upper limit has a prospective effect (meaning, effective from the day of the notification).
How does the EPFO New Rule affect you?
Based on the clause of the EDPI policy, a subscriber dies while still functioning as your employee, the family members of the subscriber, i.e. your employee’s family, will receive the benefit. This new change in the upper limit of the insurance policy can only benefit all the subscribers. This is because the upper limit has never been as high as rupees seven lakhs before. This change will end up providing additional help to the families of employees who experience an unfortunate death while still in service.
Does the employer or employee make contributions to the EDLI death insurance scheme?
Both the employer and the employee contribute to the EPF. This contribution is 12 per cent and 3.67 per cent of the employee’s salary respectively. But, as mentioned in the previous section, the employees themselves do not make any contributions to the EDLI themselves. You, do this on behalf of the employee. This means that the amount that you, the employer contribute to the fund is deducted from the employee’s salary before the salary is credited to his or her account.
What is the maximum contribution to the death insurance by an employer
You (employer) contribute 0.5 per cent of the employee’s basic salary or a maximum of Rs 75/- as an insurance premium (per employee). The employer does this on a monthly basis. In the case that there is no other group insurance scheme applicable, then the maximum cap amount is Rs 15,000/- per employee.
All employees who subscribe to the EPF scheme are automatically enrolled in the Employees’ Deposit Linked Insurance (EDLI) scheme. Apart from this, any employee who is a part of his or her company’s provident fund and actively contributes to the fund is eligible and can apply for the EDLI scheme (the age limit is 18 to 85 years).
For an organization registered under the Employees’ Provident fund and Miscellaneous Provisions Act, 1956, it is compulsory. The government made this compulsion so that all employees can avail themselves of life insurance benefits.
EDLI stands for Employees’ Deposit linked Insurance and EPFO is Employee Provident Fund Organization. EDLI is provided by the Employee Provident Fund organization. When an active subscriber of the EDLI dies while still in service, the heir or nominee gets a lump sum of Rs 7,00,000/-
In case a person joined the EPF scheme before marriage, then their nominations become invalid after marriage. They are then expected to make new nominations for beneficiaries. In any case, the beneficiaries can be any family members, where ‘family’ means- husband/wife, children(whether married or unmarried), parents and deceased son’s widow and children.
Not to be considered as tax, legal, financial or HR advice. Regulations change over time so please consult a lawyer, accountant or Labour Law expert for specific guidance.