In our country, the public sector employees have social security benefits like retirement benefits, gratuity, etc.
Well, then what about a private-sector employee?
A private-sector employee may not enjoy the same benefits as a public sector employee. This is because only some employers provide social security benefits to their employees. And also, these benefits vary from one employer to another.
So, this is why in 1976, the government came up with the EDLI scheme or Employee Deposit Linked Insurance Scheme to provide benefits like life insurance to the private sector employees.
Read more about Employee benefits in India
What is an EDLI scheme?
The EDLI scheme or the Employee Deposit Linked Insurance Scheme is a life insurance cover provided to private-sector employees by the Employee Provident Fund Organization (EPFO). This organization manages the Employee Provident Fund scheme where the retirement benefits of the employees are accumulated.
- The EDLI scheme works in combination with the Employee Provident Fund (EPF) and Employee Pension Scheme (EPS). The EPS scheme provides pensions to the employees working in the organized sector after the age of 58 years.
- So, during the event of the death of the insured employee during his/her service period, the registered nominee or the legal heir will receive a lump-sum payment.
The insurance cover depends on the last drawn salary of the employee. So if an organization is registered under the Employees Provident Fund and Miscellaneous Provisions Act of 1952, then the EDLI scheme applies to it and it is automatically enrolled on the EDLI scheme.
The main objective of the EDLI scheme is to provide financial assistance to the family members of the employees during the sudden demise.
As said earlier, the organizations that are eligible for EPF are also eligible for the EDLI scheme. What’s interesting here is that the employer contributes to the Employee Deposit Linked Insurance Scheme every month. This happens automatically when a contribution to the EPF account is made.
- The employer contributes 12% of the basic salary + DA (Dearness Allowance). Under this DA, 3.87% goes to the EPF account, 8.33% (up to Rs. 1250) to the EPS account, 0.50% (up to Rs. 75) to the EDLI scheme.
- The employee contributes 12% of the basic salary + DA (Dearness Allowance) to the EPF account.
According to Section 17 (2A) of the Act, the employer can opt out of the EDLI scheme with a group life insurance policy for employees in place. In this case, the employer must cover the employees with a group life insurance policy coverage that is more than or equal to the EDLI scheme.
In case of any unexpected death of the employee, the nominee or the legal heir will receive a lump sum payout. The EDLI calculation (with effect from April 24, 2021) is done as follows.
Average monthly salary of the employee (in the last 12 months) * 30 + Bonus amount
- The average monthly salary of the employee is the salary drawn in the last 12 months preceding the death of the employee. The basic monthly salary is capped at Rs.15,000.
- But if the employees withdraw a salary more than Rs.15,000 then the maximum benefit is capped at Rs.6 lakhs.
- Under EDLI a minimum bonus amount of Rs.1.5 lakhs is added to the coverage amount. With effect from 15th Feb 2020, the minimum bonus amount is increased to Rs.2.5 lakhs.
By considering the above facts, if an employee has a salary of Rs.15,000 (the maximum amount), then the coverage amount will be
15,000 * 30 + 2,50,000 = 7,00,000
Hence, the maximum coverage amount is 7 lakhs.
If the salary of the employee is less than Rs.15,000 say, Rs.13,000 then the lump sum amount will be
13,000*30+2,50,000 = 6,40,000
So in this case, Rs.6,40,000 will be the coverage amount.
EDLI scheme eligibility criteria
The EDLI eligibility criteria are applied for the employees to enroll for the EDLI scheme.
- All organizations with more than 20 employees are required to register for their EPF (Employee Provident Fund) account. In that regard, every employee with an EPF account is eligible for the EDLI scheme.
- Employees with a basic salary of Rs.15,000 or less are eligible to enroll for this EDLI scheme. In case, if the salary amount crosses Rs.15,000 then the employees’ maximum coverage benefit is capped at Rs.6 lakhs.
The Benefits of the EDLI scheme
The benefits of the EDLI scheme are that
- The EDLI scheme is free for all employees as the contributions to the EDLI scheme is made by the employers. The employees need to contribute only to the EPF account.
- From the previous formula of EDLI calculation, it is evident that the coverage amount is 30 times the salary amount.
- Apart from 30 times the salary amount, there is an additional bonus amount of Rs.2.5 lakh which is added to the coverage. So this makes the maximum coverage amount as 7 lakhs.
- Factors like age, the pre-existing disease does not affect the eligibility of the employee towards the EDLI scheme.
- The employer can only opt out of the EDLI scheme if there is a group life insurance policy for the employees in place. Either way, the employees will have an active life insurance policy.
- The EDLI scheme is applicable for all employees with the EPF account. Generally, any organization with more than 20 employees are required to register for an EPF account.
- The EDLI scheme covers the death of the insured employee in-service anytime and anywhere in the world.
Claim documents required for the EDLI scheme
To claim the EDLI scheme, the supporting documents required are
- The Death certificate of the insured person
- A copy of the cancelled cheque leaf: the claim amount will be remitted to this account.
- Succession certificate: a copy of the succession certificate is required in case the legal heir of the deceased files the claim.
- Guardianship certificate: if the claim is filed on behalf of a minor legal heir or nominee by a guardian, then a legal certificate of the same is needed.
- Duly filled Form 5 IF or the EDLI claim form
How to claim the EDLI scheme?
The nominee or the legal heir of the deceased insured employee should undergo the following process to claim the EDLI scheme.
- The nominee or the legal heir should duly fill the EDLI claim form, Form 5 IF.
- After that, the employer should sign the EDLI claim form.
- In case the employer is not able to or available to sign the form, then the EDLI claim form can be signed by
- A gazetted officer.
- The Magistrate.
- The bank manager where the employers’ account was maintained.
- The local MLA or MP.
- Local municipal board member/secretary/president.
- A post-master or a sub-postmaster
- A member of the CBT (Central Board Trustees, EPF) or regional committee of EPF.
- After that, the claimant should submit all the above-mentioned documents, along with the EDLI claim to the regional EPF Commissioners’ office to process the claim.
- To claim any other benefits under the EPF, EPS and EDLI, the claimant can submit Form 20, Form 10D and Form 10C to the office of the Regional EPF Commissioner.
- Make sure the documents are filled in capital letters.
- After verification of the documents, the claim will be settled in the bank account within 30 days from the receipt of the claim.
- In case the claim processing is delayed then an interest of 12% per annum will be calculated until the date of actual disbursement. The claimant is entitled to this interest.
Read: Health insurance claim process - how does it work?
To wrap it up
The EDLI scheme is one way to offer social security benefits to private sector employees. It is an employee welfare scheme promoted by the government of India. The ultimate intention of the EDLI scheme is to offer financial assistance to the family members of the deceased employee. So if you are an employee working in the private sector or an employer with more than 20 employees, make sure you have an active EPF account, which makes you eligible for the EDLI scheme by default.
Read: Difference between health insurance and term insurance
Offer group life insurance with Pazcare
Offer your employees the benefit of group term life insurance from Pazcare. A lump-sum insured amount is paid to the family of the deceased employee. You can increase the limit of the coverage as your employees’ pay/grade increases. If your employees require an add-on cover for critical illness, then they can add it along with this plan. Not only that you can also offer them with benefits plans like group mediclaim insurance, group personal accident insurance and corporate wellness programs like therapy sessions, wellness sessions, unlimited doctor consultations, and a lot more. And the best part is you can administer it at one place using the Pazcare dashboard. Take a look at our group health insurance guide to understand about group health insurance and its benefits for employers and employees.
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