Life insurance is one of the most important investments that individuals must make. It provides financial protection to loved ones in the event of an individual’s untimely death. In India, however, life insurance is often viewed as an afterthought. To tackle this pertinent issue, the government of India came up with the Employees’ Deposit Linked Insurance (EDLI) scheme. In this article, we will explore EDLI in detail and understand its features and benefits, including how to claim the scheme’s benefits.
What is EDLI?
The Employees’ Deposit Linked Insurance (EDLI) scheme was introduced in 1976 by the government of India as part of the Employees’ Provident Fund (EPF) scheme. The primary objective of the EDLI scheme was to provide life insurance coverage to employees in the organised sector. As such, all employees covered under EPF automatically become eligible for the EDLI benefits.
In the event of the death of a covered employee during their period of employment, their nominees or legal heirs would be entitled to receive a lump sum death benefit payout. The amount of life insurance payout, however, would depend on the deceased employee’s last drawn salary and period of employment.
The EDLI and EPFO’s other schemes such as the Employees’ Provident Fund (EPF) and the Employee Pension Scheme (EPS) are all aimed at providing financial security to employees of the organised sector and their families.
What are the Features and Benefits of EDLI?
The Employees’ Deposit Linked Insurance scheme has plenty of noteworthy features and benefits. Let us look at some of the key characteristics of EDLI.
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Coverage for all employees
The EDLI scheme offers life coverage for all employees of the organised sector provided they are eligible for the Employees’ Provident Fund (EPF) scheme.
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Payable only if death occurs during employment
EDLI insurance coverage only becomes payable to the nominees or legal heirs of an employee in the case of death during employment. If an individual resigns or is terminated from employment, they automatically lose the EDLI benefits.
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Salary-based payouts
The death benefit payout under the Employees’ Deposit Linked Insurance scheme is based on the average basic salary of the employee during the 12 months before their death during employment. The formula used for calculating the payout amount is as follows:
EDLI Death Benefit = Average basic salary for the last 12 months x 30
In addition to this death benefit amount, a one-time bonus of ₹2.5 lakh will be provided to the nominees or legal heirs of the deceased employee.
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Maximum payout limit
Nominees or legal heirs of employees with a basic salary of up to ₹15,000 are eligible to receive the entire amount calculated using the above-mentioned method. If the basic salary of the deceased employee exceeds ₹15,000, the death benefit is capped at a maximum of ₹7 lakh.
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Free insurance coverage
Employees entitled to EDLI benefits need not make any contributions whatsoever. Only the employers are required to make contributions of 0.5% of the employee’s monthly salary (subject to a maximum of ₹75) towards the scheme.
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Backed by the Government of India
The benefits provided by the Employees’ Deposit Linked Insurance scheme are guaranteed since it is offered by the Employees’ Provident Fund Organisation (EPFO), which is an entity under the control of the government of India.
EDLI: An Example
If you are an employee eligible for EDLI benefits, you must know how the scheme works. Here is a hypothetical example that can help you better understand the scheme.
Ramesh is an employee of a private organisation. Since he is eligible for the Employees’ Provident Fund (EPF) scheme, he is also automatically enrolled into the Employees’ Deposit Linked Insurance scheme.
Unfortunately, Ramesh suffers a heart attack and dies while in employment. Radha, Ramesh’s spouse and nominee, would now be entitled to receive the death benefit payout under the EDLI scheme.
Let us assume that Ramesh’s average basic salary for the 12 months preceding his death is ₹17,000 per month. In this case, Radha would be entitled to receive the following as the death benefit payout.
Death Benefit Payout = (₹17,000 x 30) + ₹2,50,000
Death Benefit Payout = ₹7,60,000
However, since Ramesh’s basic salary exceeds Rs. 15,000, the maximum death benefit payout is capped at ₹7 lakh, which is what Radha would receive.
How to Claim the Benefits of the EDLI Scheme?
Claiming the death benefit payout under the Employees’ Deposit Linked Insurance scheme is simple and easy. The step-by-step guide below can help you understand how the claim process works.
1. Step 1: The nominee of the deceased employee must fill out and sign Form 5 IF.
2. Step 2: The nominee must also get the Form 5 IF signed and certified by the employer. If the employing organisation no longer exists or if obtaining the signature of the employer is not possible, the nominee may get Form 5 IF attested by any one of the following individuals:
- The manager of the bank where the nominee maintains an account.
- A Member of the Legislative Assembly (MLA) or a Member of Parliament (MP).
- A gazetted officer or local magistrate
- The postmaster or sub-postmaster
- The chairman, secretary, or member of the local municipal board
3. Step 3: The nominee must submit the signed and certified Form 5 IF with all the necessary supporting documents at the respective regional EPF office.
Once the form and the supporting documents are received, the regional EPF office must process the claim within 30 days and disburse the death benefit payout to the nominee’s bank account. If there is a delay of more than 30 days, the nominee would be entitled to interest at 12% per annum until the date of disbursal.
Note: If there is no registered nominee, the legal heirs of the deceased employee may claim the death benefit payout.
Documents Required For Claiming EDLI Benefits
Submitting all the necessary documents along with Form 5 IF is crucial for smooth and seamless claim processing. The documents to be submitted when claiming EDLI benefits are as follows.
- Form 5 IF duly signed and certified by both the nominee and the employer
- Death certificate of the deceased employee
- Identity and address proof of the claimant
- Legal heir certificate or succession certificate (in case the legal heirs are claiming the death benefit)
- Cancelled cheque containing details of the bank account of the claimant
Conclusion
The Employees’ Deposit Linked Insurance scheme is a crucial provision within the EPF framework. It is designed to provide financial security to the family of an organised sector employee in the case of their death during the employment period. The lump sum death benefit payout that the loved ones of the deceased employee receive can be used to tide over their financial obligations.
FAQs
Is the EDLI scheme applicable to all employees?
Yes. The Employees’ Deposit Linked Insurance scheme is applicable to all employees covered under the Employees Provident Fund (EPF) scheme.
What is the maximum payout under EDLI?
Under EDLI by EPFO, the maximum death benefit payable to the nominees or legal heirs of deceased employees is capped at ₹7 lakh.
Will I still be covered by the EDLI scheme even if I already have a life insurance plan?
Yes. Even if you already have a life insurance plan with another insurance entity, your beneficiaries can still claim the death benefit payout provided by the EDLI scheme.
What happens if the employee has not nominated any individual for receiving the benefits under the EDLI scheme?
If an employee has not appointed any nominee, the legal heirs can claim the benefits under the EDLI scheme in the event of death during service.
Should all employers mandatorily opt for the EDLI scheme?
No. Employers may choose to opt out of the Employees’ Deposit Linked Insurance scheme if they provide life insurance with better benefits and higher payouts to their employees.
