Nowadays, most organisations offer the facility of provident fund (PF). EPF (Employees’ Provident Fund Scheme 1952) and EPS (Employees’ Pension Scheme 1995) are the two different retirement saving schemes under Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, meant for salaried employees.
It is mandatory for every employee drawing a basic pay of up to Rs. 6,500 per month to make contribution towards EPF & EPS. However, employees drawing basic salary over Rs. 6,501 per month have an option to get PF deducted from their salary. The EPF & MP Act, 1952 provided for PF and a family pension scheme for employees from 1971 onwards. However, it was felt that problems arising out of early death of the employee were left unaddressed. In view of this, the Act was amended to incorporate an insurance scheme, called the Employees’ Deposit Linked Insurance (EDLI) Scheme in 1976.
The objective of EDLI was to put in place a mechanism to provide employees families with income security after the death of the member. It was funded through contributions by the employer and central government with no contribution by the employee. EDLI scheme provides for a lump sum payment to the insured's nominated beneficiary in the event of death due to natural causes, illness or accident.
EDLI scheme is applicable to all the factories and establishments to which the EPF & MP Act, 1952 applies. In short, all employees who join the Employees’ Provident Fund are covered by the EDLI. The EDLI cover applies worldwide and 24-hours a day. There are no exclusions under this policy.
The scheme has undergone several changes since its introduction. The government no longer contributes to the scheme and the rates of benefits have also been changed many times. The contributions thus come only from the employers. A comprehensive administrative framework was set-up to ensure smooth functioning of the scheme.
According to EDLI scheme, in any organization—where group insurance scheme is not available to the employees—the employer / organisation has to contribute 0.5% of monthly basic pay (capped at maximum Rs. 6,500) as premium for the life insurance cover. All employees who are covered under their organization’s Provident Fund and are actively contributing to their PF account (age group of 18 to 85 years) are eligible for EDLI.
The employer’s contributes 0.5% of basic pay of an employee as insurance premium to the EDLI scheme every month. The benefit under the scheme is given on the basis of the provident fund balance in the subscriber’s account. For EDLI scheme, the insurance cover is variable and it is based on the subscriber’s average balance in his PF account over a period of last 12 months.
The insurance cover amount is higher of the two: 20 times the average basic pay of the past 12 months (up to Rs. 6,500 per month), i.e. Rs. 1.3 lakh [Rs. 6,500 X 20] or the full amount in your PF account up to Rs. 50,000 and 40% of the balance amount = Rs. 70,000 [Rs. 50000 + (Rs. 50,000 X 40%)]. Under EDLI, an EPFO (Employees' provident Fund Organisation) subscriber gets insurance cover and gets benefit of up to Rs. 1.3 lakh in case he /he dies before superannuation.
In case of an unfortunate death of the insured person, the nominee can claim the insured amount by attaching the attested copy of the death certificate along with Form 5 (IF)
. The form has to be filled up separately by each claimant. In case the claimant is minor it should be filled up by the guardian on his / her behalf.
Since the life cover provided under EDLI is comparatively low, the government has provided that against EDLI scheme an employer can approach a life insurance company for better cover to employees. The employer also has the choice to choose a higher sum assured for the employees. In this case the EPFO (Employees’ provident Fund Organisation) exempts an employer / company from EDLI. This scheme is called group insurance scheme.
Group term insurance plan
Little known facts about EPF & EPS
The need for EPF
Group personal accident insurance policy
Employees’ State Insurance… For lower income groups