Training on

Business Insurance Solutions

HDFC Life: For internal training purpose only, not for solicitation.
What is Business Insurance?

Business Insurance solutions give financial protection to businesses

from losses that may occur during the normal course of business

Covers
Protects from
employee
legal liabilities
related risks

Protects
Protects
organization’s
Key Employees
interests

Offers value based planning

Valuation Protection Increases Credibility and
Profit Protection Goodwill of Business

HDFC Life: For internal training purpose only, not for solicitation.
Types of Business Insurance Solutions

Keyman Partnership Employer

Insurance Insurance Employee

HDFC Life: For internal training purpose only, not for solicitation.
Where will you sell business insurance solutions?

Medium, Small and Micro Enterprises

They are major contributors to India’s GDP,

exports and are crucial for our socio-economic
development

These enterprises are broadly categorized into:

 Manufacturing firms
 Service firms

HDFC Life: For internal training purpose only, not for solicitation.
This is a large market for you to tap and succeed

6.3 Cr Recorded MSMEs in India as of FY 23

30% Contribution of MSMEs to the GDP

People are employed in MSMEs which is

11 Cr ~40% of the total work force

95% Industrial units are MSMEs

50% The total exports done by MSMEs

MSME budget allocation for FY23-24, an

₹ 22,138 Cr increase by 42%

Source: Press Information Bureau, Government of India, [Link]

HDFC Life: For internal training purpose only, not for solicitation.
Types of Business Insurance Solutions

Keyman Partnership Employer

Insurance Insurance Employee

HDFC Life: For internal training purpose only, not for solicitation.
Who is a Keyman?

Keyman is a senior-level
executive whose services
contribute substantially to
the success of the business.

HDFC Life: For internal training purpose only, not for solicitation.
What is Keyman Insurance?

A Proposition to Mitigate Business Risks

The death of a key employee may lead to the

following losses to a business:

 Loss of earnings Keyman insurance is an important

 Loss of specialized skills form of business insurance that
 The cost of recruiting and training a new recruit compensates businesses for financial
 Loss of assets built over many years losses that would arise from an untimely
 Loss of an opportunity to expand in future
death or absence of an important
member of the business / firm.
 Loss of stable management
 Reduction of creditworthiness (recall of loans)

Keyman Insurance compensates with a fixed sum assured as specified in the insurance policy; does not
indemnify against the actual losses incurred.

HDFC Life: For internal training purpose only, not for solicitation.
Examples of untimely demise of high-level executives

Singer India’s Board of Directors

included Rakesh Jhunjhunwala
Rakesh Jhunjhunwala, held 6.95% stake in Singer India Limited
(worth INR 37.06 crores) when he passed away suddenly after a brief
illness on August 14, 2022.

Ambareesh Murthy was the CEO of As seen in these

Pepperfry Limited examples, it’s vital for
CEO Ambareesh Murthy had ₹51.54 crores total share companies to have better
holding in Pepperfry when he suddenly passed away in business risk mitigation measures
offsite on 7th August 2023 to deal with such
unforeseen eventualities.

Sanjay Shah was the CEO of Vistex,

a software firm in the U.S.
Tech entrepreneur Sanjay Shah, founder and CEO of the Chicago-based
global software company Vistex, Inc.—was tragically killed on Jan. 18
2024 in India, after an accident during the firm’s 25th anniversary
celebration for Vistex Asia Pacific. He was 55.

HDFC Life: For internal training purpose only, not for solicitation.
How does Keyman Insurance work? (1 of 2)

Working

Premiums

Business Death benefit that compensates Insurance

for loss of key person
Company

A Key Person can be:

 Owner
Insurable Interest
 Top Executive
Key  Any individual considered crucial to the business, whose
Person death or long-term absence, will have a bearing on the
profitability of the business

HDFC Life: For internal training purpose only, not for solicitation.
How does Keyman Insurance work? (2 of 2)

Employee
is the life
Conditions:
Employer assured
pays the  Keyman need not hold the highest position
premium or any specialized professional qualification

 Keyman includes ‘key woman’

 There can be more than one Keyman

Receiver of within a business
Life to be Premium Policy
Proposer the policy
Insured Payor Owner
proceeds

Employer Keyman Employer Employer Employer

HDFC Life: For internal training purpose only, not for solicitation.
Benefits of Keyman Insurance

 The business gets a sum assured when a claim is raised. The sum
assured helps in coping with financial loss, if any

 Strengthens the business’s working capital and balance sheet

 Businesses can save tax, reinvest that amount in own business and
earn more profit

 Businesses can attract and retain valuable employees / directors /

Keyman

 Helps assure creditors and suppliers of the continuity of business

Keyman can also safeguard his immediate family from financial

losses in case of untimely demise

HDFC Life: For internal training purpose only, not for solicitation.
Death Benefit in Keyman Insurance

Business proposes the policy Death Benefit is received by the company and is
on the life of the Keyman, Employee dies treated as income under the head “Profits & Gains
pays the premiums and gets during the policy of Business or Profession” u/s 28(vi) of the Income
the benefit of section 37(1) tenure. Tax Act, 1961. The company may choose to utilize
as revenue expenditure. this amount in two ways.

Scenario 1 Scenario 2

The company makes an ex-gratia Company retains the Death Claim and
payment in the same financial year to utilizes the money for the losses incurred
the widow or legal heir of the Keyman. due to the death of a Key person and
induction of a new key employee.

Any lump sum amount paid gratuitously by way of

compensation to the widow or legal heirs of employee, on
death of the employee by his employer shall not be taxable
as per the CBDT circular no. 573 dated August 21, 1990.

Note:
HDFC Life will deduct TDS at the
time of paying the death proceeds

HDFC Life: For internal training purpose only, not for solicitation.
Eligibility Criteria

Who could be eligible to be Keyman Keyman Insurance is NOT available to

the following categories of businesses

 The Keyman should hold less than 25%  Proprietary firms / Trusts or Charitable
of the company’s shares. Institutions

 The total number of shares held by the  Firms where the Keyman holds more
Keyman and family* together should be than 25% shares and where the keyman
less than 75% of the company’s shares. and family holds more than 75% of
shares

 Valid proof of the critical role that the

proposed life (Keyman) plays in the  Where the firm is not making profit for 3
business of the company is required. years or where turnover of the company
are on decline

 Cover is provided only up to the Keyman

attains the age of 65 years (can go beyond
subject to underwriter’s approval on a case to
case basis)
*Family includes spouse and minor children only.

HDFC Life: For internal training purpose only, not for solicitation.
Calculation of SA in Keyman Insurance

The maximum sum assured of Keyman insurance is the lower of:

10 3 5
Times Times Times

Keyman’s annual The average gross The average net

compensation profit of the company profit of the company
package in the past 3 years in the past 3 years

HDFC Life: For internal training purpose only, not for solicitation.
Documentation in Keyman Insurance

Here is an indicative and not exhaustive list of the mandatory

documents required for Keyman Insurance:

Copy of Memorandum and Articles of Association of the company

Keyman supplementary questionnaire

Board resolution of the company

Annual reports / Business Accounts (Income Tax Returns with Audited Balance Sheet
and Profit & Loss Accounts) of the company of the last 3 years

KYC of the Keyman

HDFC Life: For internal training purpose only, not for solicitation.
What if a Keyman resigns and joins another organisation?

The first employer, who has bought the Keyman

policy, can choose any one of the following options:

 The first employer can stop paying the premiums and allow the
policy to lapse.

 The policy could be transferred to the new employer of the Keyman

on terms mutually agreed upon by both the companies.

 The policy can be assigned in favour of the life assured / Keyman.

However the nature of the policy will remain the same and if
death claim arises then the death benefit in the hands of
widow/legal heir will be taxable

HDFC Life: For internal training purpose only, not for solicitation.
Products offered under Keyman Insurance

Super & Elite Sanchay Legacy Saral Jeevan Bima

 Only full underwriting product variants are allowed

 Only Life and ROP variants are allowed
 Accelerated Death Benefit option is also allowed
 Riders allowed are Accidental Death Benefit and Term rider

HDFC Life: For internal training purpose only, not for solicitation.
Types of Business Insurance Solutions

Keyman Partnership Employer

Insurance Insurance Employee

HDFC Life: For internal training purpose only, not for solicitation.
What is a Partnership Business?

A partnership business is jointly owned by many parties and largely

has the following characteristics:

 It is a formal arrangement but is not a corporate entity

 Can be of any one of the three types:

 general partnership

 limited partnership

 limited liability partnership (LLP)

 Labour and resources are shared

 Profits and losses are shared

 Operations are overseen by the partners

 Tax benefits are higher compared to a corporation

 Partners are liable for any business debt

HDFC Life: For internal training purpose only, not for solicitation.
How does Partnership Insurance work?

Conditions:

 A partnership firm has an insurable interest

Individual on the lives of each partner to the extent of
Partners the amount of purchase money,
Partnership equivalent to the share of each partner.
Firm
 Only term policies can be taken under
partnership insurance.
Life to be Premium
Proposer Policy Owner
Insured Payor
 Insurance cover is given only if it is clearly
Partnership Partnership Partnership mentioned in the Partnership Deed that it is
Partner
Firm Firm Firm
an irrevocable partnership.

HDFC Life: For internal training purpose only, not for solicitation.
Benefits of Partnership Insurance

Benefits to Families of Benefits to the Benefits to the

the Deceased Partners Partnership Firm Surviving Partners

 Hassle-free settlement of claims  Ensures business continuity  Protection of business interest

 Smooth transition of business  Promotes goodwill of the firm  Smooth transition of business
 The successor of the deceased is  Protects against disruption  Liquid capital to settle accounts
not obliged to become involved with the family of the deceased
in the business  Funds made available immediately partner
on the death of a partner
 Funds to buy out a deceased
 A means to overcome any debt left partner’s share
behind by the deceased partner

 Gives confidence to lenders

HDFC Life: For internal training purpose only, not for solicitation.
Tax Implications in Partnership Insurance

All the premiums paid should be considered for deduction

At the time of premium
as business expense under section 37(1) of the Income
payment tax Act, 1961

Death Benefit is paid to the Partnership firm. Such proceed

At the time of death under partnership insurance will be treated as Business
claim Income under section 28(vi) of the Act and will be taxable

In the event of death post assignment: Death proceed

Policy assignment to the
received by legal heir will be treated as income from other
Partner* sources and will be taxable

*Only in the event of partner/s (LA) exiting the firm along with the
consent of all other existing partners and subject to underwriters approval

HDFC Life: For internal training purpose only, not for solicitation.
Rules to Calculate Sum Assured in Partnership Insurance

The maximum sum assured for an

employee with a stake in the firm
is based on:
Average of 2 years Average of 2 years
Net Profit x 5 Gross Profit x 3
Financial viability similar to individual
01 viability
(Whichever is less)

Percentage of share-holding profit will

 As a rule, depreciation should not be allowed
02 be added to his / her individual viability
 Maximum sum assured per partner cannot exceed the capital contribution by
the respective partner
Risk cover calculated should include existing cover
 Final eligible sum assured would be divided amongst all partners of the firm from all insurers
as per their respective profit sharing ratio
 NOC from other partners to be taken if life insurance cover is being taken on
one partner
 Nomination is not allowed

HDFC Life: For internal training purpose only, not for solicitation.
Eligibility Criteria, Documentation and Conditions

Eligibility Criteria Documentation Terms and Conditions

 Profitability of the business in the last 3  Partners’ individual Income Tax  Allowed only on the lives of the
financial years Returns and Computation of Income partners

 Existence of business license from  ITR of the firm and audited Profit and  Issued in the name of the partnership
appropriate authorities Loss Account Balance Sheet firm only

 Existence of Partnership Deed clearly  Audited capital account statements of  Cannot be assigned to any person
identifying which partner owns how all the partners other than the partners
much share of the business
 Partnership supplementary  Can be offered to active partners only
questionnaire
 All partners will have to apply together.
 Copy of Partnership Deed
 There is no cap on shareholding

Note: ITR, COI, Balance Sheet: All of the last 3 assessment years.

HDFC Life: For internal training purpose only, not for solicitation.
Products offered under Partnership Insurance

Super & Elite Sanchay Legacy Saral Jeevan Bima

 Only full underwriting product variants are allowed

 Only Life and ROP variants are allowed
 Accelerated Death Benefit option is also allowed
 Riders allowed are Accidental Death Benefit and Term rider

HDFC Life: For internal training purpose only, not for solicitation.
Activity: Compare between Keyman and Partnership Insurance

KEYMAN INSURANCE PARTNERSHIP INSURANCE

Objective

Who pays

Beneficiary

Death Benefits
paid to

Tax treatment for

Company/Firm

If Assigned
(subject to U/W)

Types of
Products offered HDFC Life: For internal training purpose only, not for solicitation.
Activity: Compare between Keyman and Partnership Insurance

KEYMAN INSURANCE PARTNERSHIP INSURANCE

To provide financial protection to To provide financial protection to a

Objective the business (company/firm) in case of partnership business in case of an
an unexpected death of a key person unexpected death of a partner

Who pays  Company  Partnership firm

Beneficiary  Company  Partnership firm

Death Benefits  Company  Partnership firm

paid to

Tax treatment for a) Premiums paid will be considered as business expense under section 37(1)
Company/Firm b) Death Benefit will be treated as business income under section 28(vi)

If Assigned Death benefits will be taxable in the hands Death benefits will be taxable in the hands of the
(subject to U/W) of the legal heir(s) of the deceased Key man legal heir of the deceased Partner

Types of Full underwriting pure term products Full underwriting pure term products
Products Offered with ADB and Term rider with ADB and Term rider
HDFC Life: For internal training purpose only, not for solicitation.
Types of Business Insurance Solutions

Keyman Partnership Employer

Insurance Insurance Employee

HDFC Life: For internal training purpose only, not for solicitation.
What is Employer Employee Insurance?

Employer Employee is based on the As a benefit scheme, an Employer

principle that the employer has an takes life insurance on the life of the
insurable interest in his / her designated employee
employees and may include:

 Group Insurance – Where a whole group

of employees are insured by the employer

 Individual Insurance

On Survival On Death
Employee receives Nominee / legal heir of
the maturity benefit the employee is paid the
death benefit

HDFC Life: For internal training purpose only, not for solicitation.
Who is considered to be an Employee?

An employee is one who People who are not employees

Draws a salary Proprietor of a Proprietorship Firm

Bank statement shows

Partners in a Partnership Firm
salary credits

Reports income under the head Contractual Employees

‘Income from Salary’ in the
Income Tax Return form
Employees on daily pay
Receives Form 16 from the
employer
Trustee of a Trust
Form 26AS shows tax
deduction on salary

HDFC Life: For internal training purpose only, not for solicitation.
Which types of companies can opt for Employer Employee schemes?

Proprietorship Limited Liability Public Limited Partnership

Firm Partnership Company Firm

Co-operative Private Limited Trusts

Society Company

HDFC Life: For internal training purpose only, not for solicitation.
 Types of Employer Employee Schemes

Special conditions:
 Lock-in period is defined by the employer at
inception for both the schemes

Employee  In case of LTRP

is the life • Policy is re-assigned to the employee after
Employer assured
the lock-in period is over
pays the
premium
• Post re-assignment the payor of the
remaining premium (if any) will be the
employee

Receiver of  In case of EE2

Life Premium
Type Proposer the death Policy Owner • Ownership changes once the lock in period
Assured Payor
benefit is over
• Post change of ownership the payor of the
Employer
remaining premium (if any) will be the
(within lock-in)
Employer employee
Employee Employer Employee Employer Employer
Legal heir /
(Scheme 2)  Policy shall not be assigned to any one else
nominee
(post lock-in) except the employee

Policy will be  Loan(s)

Long Term • Can be given to the employee in both the
conditionally
Reward
Only Legal heir assigned to the schemes once the lock-in period is over and
Program for Employee Employee Employer
or nominee Employer the policy is assigned back to the employee
Employee
immediately post • Cannot be given to the Employer in both
(LTRP)
issuance EE2 and LTRP

HDFC Life: For internal training purpose only, not for solicitation.
Benefits of Employer Employee Schemes

To Employer To Employee

 Can be used to retain performing and deserving  Premiums are paid by the employer - The
employees employee will feel valued

 A customizable tool to reward performers and  Employer helps the chosen employee in wealth
boost their efficiency and productivity accumulation for future goals

 The welfare nature of the scheme will enhance the  Reward for an employee (in the form of maturity
image of employer in the minds of employees, and other payouts) because policy shall be
clients and other shareholders assigned in favour of the employee before the start
of any policy benefits
 Optimization of taxes**
 Financial security for employee’s loved ones (in the
form of death proceeds) in case of untimely death
of the employee

**As per prevailing Tax laws and subject to changes

HDFC Life: For internal training purpose only, not for solicitation.
How does Employer-Employee scheme 2 work?

The employer The life to be Premium is

buys an insurance insured is the paid by the
policy under EE employee employer

Post the lock in period, the ownership of the policy

will changes to the Employee

If employee passes
Two likely situations: away within
lock-in period

Survival Death

 Death Benefit is paid to the employer by HDFC Life

The employee
after deducting TDS. Such proceeds in the hands
survives up to The employee
of the employer will be taxable in the FY in which
Retirement / full passes away the same is received
term of the policy
 The Employer can make an ex-gratia payment to
the legal heir of the Employee as per the
Such receipts are included declaration cum indemnity by the employer at the
in salary income of the On survival, Death Benefit will be given time of the issuance of the policy
employee and is taxable on the employee to legal heir. This amount
account of change in tax receives the will be treated as income
law from 1st April 2014 maturity proceeds from other sources and will The claim amount received by the
(HDFC Life will deduct TDS) be taxed. HDFC Life will deceased employee’s legal heirs
deduct TDS. will be exempt from tax under
CBDT circular 573

HDFC Life: For internal training purpose only, not for solicitation.
What is the Tax treatment at every stage of EE scheme 2 ?

EMPLOYER EMPLOYEE

At the time of premium payments: At the time of premium payments:

 All the premiums paid should be allowed as deduction u/s 37(1) of In EE2, premiums paid by the employer will not be treated as perks for
the Income-tax Act, 1961 the employee and hence no perquisite tax will be applicable

Ownership of the policy changes post lock-in:

Policy surrendered within lock-in period: Notional surrender value at the time of ownership change will be
treated as income in lieu of salary for the employee and will be taxable
Policy proceeds are paid back to the employer if policy is
surrendered for some reasons within the lock-in period
Survival / Maturity Benefits:
Such policy proceeds will be treated as Business Income under  Such policy proceeds will be taxable in the hands of the employee
section 28(vi) and will be liable to be taxed as income from other sources / profits in lieu of salary, for all types
of savings plans
Same treatment for ULIP and Traditional plans
Death Benefit within lock-in period:
 Employer can pass on the death benefit to the legal heir of the
deceased employee
Policy ownership changes to the employee post lock-in:  Such proceeds received by legal heir of the employee in service as
It is employer’s liability to deduct tax at source u/s 192 of the income gratuitous payment (ex-gratia) from employer will be exempt from tax
tax act on the notional surrender value of the policy in the hands of legal heirs – CBDT Circular 573
Death Benefit post lock-in/assignment:
 HDFC Life will deduct TDS and directly pay to the legal heir/nominee.
 Such proceeds will be subject to tax in the hands of the legal heirs as
income from other source

HDFC Life: For internal training purpose only, not for solicitation.
How does Long Term Reward Program (LTRP) for Employee work?

The employee The life to be Premium is

buys an insurance insured is the paid by the
policy under LTRP employee employer

Post the lock-in period, the policy will be

Re-assigned to the employee

If employee
Two likely situations: passes away within
lock-in period

Survival Death

The employee Legal heir will be tagged in HLI

survives up to The employee system; Death claim will be
Retirement / full passes away directly given to the legal heir of
term of the policy the employee. This amount will
be treated as income from other
sources and will be taxed in the
Such receipts are included hands of the legal heir/nominee
in salary income of the On survival, (HDFC Life will deduct TDS )
employee and is taxable on the employee
account of change in tax receives the
law from 1st April 2014 maturity proceeds
(HDFC Life will deduct TDS)

HDFC Life: For internal training purpose only, not for solicitation.
What is the Tax treatment at every stage of LTRP ?

EMPLOYER Same treatment as mentioned under EE2

EMPLOYEE Fully taxable scheme

At the time of the First Premium Payment

 1st Premium paid by the employer on behalf of the employee will be treated as perquisite and the employee will have to pay perquisite tax.
 Subsequent premiums paid by the employer after assignment of the policy shall not be taxable as perquisite in the hands of the employee.

Policy Re-assigned to the employee post lock-in:

Notional surrender value at the time of assignment will be treated as income in lieu of salary for the employee and will be taxable.

Survival / Maturity Benefits:

 Such policy proceeds will be taxable in the hands of the employee as income from other sources / profits in lieu of salary, for all types of
savings plans

Vesting Benefits in a Pension Plan:

 Commutation up to 60% of the corpus by the employee shall be exempt under sec 10(10A)(iii).
 Annuity payouts will be taxable. Currently there are no TDS implications for the Indian tax residents from annuity payout hence there is
no obligation for HDFC Life to deduct TDS.

Death Benefit:
 Death proceeds will be paid directly to the nominee / legal heir of the employee by HDFC Life under all circumstances
 Such proceeds received by legal heir of the employee in service or otherwise will be treated as income from other sources and will be taxable

HDFC Life: For internal training purpose only, not for solicitation.
What types of Products are offered under Employer and Employee schemes ?

 FU (Full underwriting) products are considered and LU / DOGH products are not
considered
 Health and Group products are not allowed
 Immediate income options are not allowed
 Joint Life products are not allowed
 Children Plan are not allowed
 Online only products are not allowed
 All Savings / ULIP / Protection products are allowed which are not falling in
above mentioned categories.
 All Single Premiums are allowed and any multiple of Sum Assured is allowed
(As per applicability)

HDFC Life: For internal training purpose only, not for solicitation.
What Products are offered under LTRP and EE2 ?

Sanchay Plus
Sanchay Par Advantage (Deferred Income
Option)
Sanchay FMP (Single Life)
Click 2 Achieve (Deferred Income Option) Sampoorna Nivesh
Guaranteed Income Insurance Plan Smart Woman
Assured Gain Plus Classic / Premier / Elite
Traditional Income Advantage ULIP Pro Growth Flexi
Saving Saving
Sampoorna Jeevan (Deferred Income Option) Pro Growth Plus
Plans
Plans Guaranteed Wealth Plus
Pro Growth Super II
Saral Jeevan
Crest (Free Asset Allocation)
Smart Income
Classic One (Single Life)
Uday
Smart Protect Plan
Sampoorn Samridhi Plus
Classic Assure Plus
Super Income Plan

Click 2 Protect Super Protect Plus Rider

Protection Click 2 Protect Elite Riders (Accidental Death variant)
Plans Sanchay Legacy Term Rider
Saral Jeevan Bima

HDFC Life: For internal training purpose only, not for solicitation.
Pension & Deferred Annuity Products are open for LTRP Scheme.
Note the Key Propositions and the Products!

For Employer For Employee For Sales Person

 Tax savings for the company  Creation of retirement income  Product credits equal to savings
through company funds products
 Retirement benefits for the
Employees  Wealth accumulation for future  Customer satisfaction
goals
 Quick conversion due to no
 Tax free return up to 60% of the underwriting and 24hrs issuance
commutable corpus will be
available u/s 10(10A)(iii)

Personal Pension Plus

Systematic Pension Plan
Pension Deferred Pension Guaranteed Plan
Assured Pension Plan (ULIP Pension)
Plans Annuity Systematic Retirement Plan
Smart Pension Plan (ULIP Pension)
Plans Smart Pension Plus
Guaranteed Pension Plan

HDFC Life: For internal training purpose only, not for solicitation.
Important points on Lock-in period

Defining of the lock-in period by the employer is

mandatory for both the schemes of EE

Lock-in
In case of products like, Sanchay Plus, Sanchay Par Period
Advantage and Click 2 Achieve end date of the lock-in period
need to be prior to the 1st pay-out date (survival benefit)

For example, Immediate Income plans like Early Income variant

of Click 2 Achieve etc where pay out starts immediately after
payment of first premiums will not be feasible for EE Schemes
with lock-in periods

In case of Pension plans, the end date of the Lock-in period

need to be prior to the vesting date

In case of deferred annuity plans, the Lock-in period needs to

be less than the deferment period

HDFC Life: For internal training purpose only, not for solicitation.
Eligibility Criteria of Employer Employee Scheme

Can be given to the directors of public / private limited / limited

companies

Open to employees only with valid income proof working in

companies, partnership, proprietorship, registered trust and not to
owners, partners, trustees or share holders

If the employee is the proprietor who is applying for EE, financial

credentials of both the company and proprietor will be required

The company should be profitable and should also be able to

justify the total premium payment across all employees.

Cannot be given to a company that has not made profits for 3

consecutive years or the profits and turnover are on decline

However there can be exceptions which can be reviewed on a case to

case basis like a start up company that is yet to make profits but with a
genuine intention to pass on the insurance cover as an employee benefit

HDFC Life: For internal training purpose only, not for solicitation.
Calculation of Sum Assured Under Employer Employee Scheme

The maximum sum assured under employer

employee insurance is based on:

Financial viability similar to individual viability

For an employee with a stake in the firm,

percentage of share-holding profit will be added
to his / her individual viability

HDFC Life: For internal training purpose only, not for solicitation.
Illustrative examples of LTRP and EE scheme 2

HDFC Life: For internal training purpose only, not for solicitation.
 Example 1
LTRP with Systematic Pension Plan as an Option (1/2)

Pension can be sourced under LTRP wherein the Employer purchases a pension plan for the employee.

Employer: Payor Employee: Life Assured

Mr. Surya, 40, is the Chief of Operations of software firm Great Tech. He has been with the firm for
the past 15 years. The firm wants to give him HDFC Life Systematic Pension Plan under LTRP.

Sum Assured: Rs. 1 crore; Annual Premium: Rs. 10L; PPT: 10 years: Lock-in period: 10 years

Particulars Amount in INR

Annual premium paid by the employer 10,00,000

Total premiums paid in 10 years by the employer (A) 1,00,00,000

Tax @ 27.82% optimised by the employer u/s 37(1) every year 2,78,200

Tax @ 27.82% optimised by the employer u/s 37(1) in 10 years (B) 27,82,000

Investment by company (less tax optimised under u/s (37)1 (A – B) 72,18,000

Note:
The above is an illustrated example without GST, as per prevailing tax laws and may be subject to changes.
• Tax under sec 115BA @ 27.82% = Corporate tax rate @ 25%+ Surcharge @ 7% on income-tax + 4% cess on income-tax
• Perquisite tax will be applicable only on the 1st premium amount for the employee

HDFC Life: For internal training purpose only, not for solicitation.
 Example 1
LTRP with Systematic Pension Plan as an Option (2/2)

Employer’s Investment Premium Paid (10L x 10): 1 Cr – 27.82L (tax optimized)

Rs. 72,18,000 Perquisite tax will be applicable on the 1st premium

amount for the employee Mr. Surya

On 10th year Notional Surrender Value: 1.24 cr.

Policy is re-assigned after
the end of lock-in period Tax to be paid by the Employee : ~ Rs. 37 L*
(Optional at this stage)

 On 20th policy year, that is on the vesting year, Mr. Surya will have an option to
withdraw up to 60% of the total vesting benefit, i.e., Rs.1,66,67,250 tax free
by availing sec 10(10A) benefit.

12499470
 From 21st year onwards, Mr. Surya will get an annuity income from the remaining 40% of
the corpus. This income will be taxable as per the prevailing individual income tax rate

Within lock-in period 1

4
Death Benefit is paid to the legal heir of
On Death
the employee and will be Taxable

Post Re-assignment

*Tax paid by the employee is calculated at approx

HDFC Life: For internal training purpose only, not for solicitation. individual income tax rate slab
 Example 2
LTRP with Sanchay Plus Long Term Income as an Option (1/2)

Employer: Payor Employee: Life Assured

Mr. Amit, age 40 yrs is a top executive of an upcoming business firm. He has been with the firm for the past 12 years.
The firm wants to reward him with HDFC Life Sanchay Plus plan with Long term Income option under LTRP

Annual Premium: Rs.50 Lacs; PPT: 10 years; Payout Term: 30 years; Deferment period: 2 years;
Lock-in period as specified by the employer: 12 years.

Particulars Amount in INR

Annual premium paid by the employer 50,00,000

Total premiums paid in 10 years by the employer (A) 5,00,00,000

*Tax @ 27.82% optimised by the employer u/s 37(1) every year 13,91,000

*Tax @ 27.82% saved by the employer u/s 37(1) in 10 years (B) 1,39,10,000

Investment by company (less tax saved under u/s (37)1 (A – B) 3,60,90,000

Note:
The above is an illustrated example without GST, as per prevailing tax laws and may be subject to changes.
• Tax under sec 115BA @ 27.82% = Corporate tax rate @ 25%+ Surcharge @ 7% on income-tax + 4% cess
• Perquisite tax will be applicable only on the 1st premium amount for the employee

HDFC Life: For internal training purpose only, not for solicitation.
 Example 2
LTRP with Sanchay Plus Long Term Income as an Option (2/2)

1St Payout will be given out from the end of

Rs. 55,37,500
13th policy year after two years of deferment

 At this stage the notional surrender value may be

At the start of 13th
year, added as income in the hands of the employee for that
policy is Re-assigned to particular year and taxed accordingly
the employee after the
 Employee can pay the tax on notional surrender value
lock-in period
and can set this off with the final value or he can pay
tax on entire proceeds at the time of realization

 Payouts of Rs.55,37,500 will be paid to the Employee every year for 30 years
 Payouts will be taxable in the hands of the employee as per individual income tax
rate

 There is a high probability of getting ~ 6% post tax IRR in this illustrative example

Policy within lock-in

Death Benefit is paid to the legal heir of
On Death the employee and it will be taxable in
the hands of the legal heir
Policy Re-assigned

HDFC Life: For internal training purpose only, not for solicitation.
 Example 3
LTRP with Systematic Retirement Plan as an Option (1/2)

Employer: Payor Employee: Annuitant

Mr. Mayank Shah, age 45 yrs is a top executive of an upcoming business firm. He has been with the firm for the past 10 years.
The firm wants to reward him with HDFC Life SRP plan under Long Term Reward Program for employee.

Annual Premium: Rs.15 Lacs; PPT: 5 years; Deferment period: 15 years; Plan Option: Life Annuity with return of
purchase price i.e., premiums paid; Lock-in period as specified by the employer at inception: 6 years

Particulars Amount in INR

Annual premium paid by the employer 15,00,000

Total premiums paid in 5 years by the employer (A) 75,00,000

*Tax @ 27.82% optimised by the employer u/s 37(1) every year 4,17,300

*Tax @ 27.82% saved by the employer u/s 37(1) in 10 years (B) 20,86,500

Investment by company (less tax saved under u/s (37)1 (A – B) 54,13,500

Note:
The above is an illustrated example without GST, as per prevailing tax laws and may be subject to changes.
• Tax under sec 115BA @ 27.82% = Corporate tax rate @ 25%+ Surcharge @ 7% on income-tax + 4%
cess on income-tax
• Perquisite tax will be applicable only on the 1st premium amount for the employee

HDFC Life: For internal training purpose only, not for solicitation.
 Example 3
LTRP with Systematic Retirement Plan as an Option (2/2)

Employer’s Investment Premium Paid (15L x 5): 75L – 20.87 L (tax optimized)

Rs. 54,13,500 Perquisite tax will be applicable only on the 1st premium
amount for the employee

On 7th year Notional Surrender Value: Rs. 35,88,518

Policy is re-assigned after
Tax payable by the Mr. Shah : ~ Rs. 11 Lac*
the end of lock-in period He can pay the tax on notional surrender value and set this off
later on the proceeds at the time of realization

 Survival benefits in the form of Annuity will be paid to the Annuitant (the employee
Mr. Shah) after the end of the deferment period of 15 years
 Annuity will be taxable in the hands of the annuitant (employee) as per individual
income tax rate

 Please note, policy should be re-assigned back to the employee before the start of
annuity payouts. This is the reason, the lock in period defined by employer should
always be less than the chosen deferment period of the plan

Policy within lock-in

Death Benefit is paid to the legal heir of

On Death
the employee and it will be taxable

Policy Re-assigned

*Tax paid by the employee is calculated at approx

HDFC Life: For internal training purpose only, not for solicitation. individual income tax rate slab
 Example 4
EE2 with Sanchay Fixed Maturity Plan as an Option (1/2)

Savings plan can be sourced under this scheme, wherein Employer purchases a savings plan for the employee.

Employer: Payor Employee: Life Assured

Ms. Alia, 45, is a senior executive with Spic Laboratories. She has been with the lab for the past 20
years. Her organisation wants to gift her HDFC Life Sanchay Fixed Maturity Plan for her long
service.
Sum Assured: Rs. 34.50L; Annual Premium: Rs. 5L; PPT: 5 years; Lock-in period: 5 years

Particulars Amount in INR

Annual premium paid by the employer 5,00,000

Total premiums paid in 5 years by the employer (A) 25,00,000

Tax @ 27.82 % optimised by the employer u/s 37(1) every year 1,39,100

Tax @ 27.82 % optimised by the employer u/s 37(1) in 5 years (B) 6,95,500

Investment by company (less tax optimised under u/s (37)1 (A – B) 18,04,500

Note:
The above is an illustrated example without GST, as per prevailing tax laws and may be subject to changes.
• Tax under sec 115BA @ 27.82% = Corporate tax rate @ 25%+ Surcharge @ 7% on income-tax + 4% cess on
income-tax
• Perquisite tax will NOT be applicable only on the premium amount for the employee
HDFC Life: For internal training purpose only, not for solicitation.
 Example 4
EE2 with Sanchay Fixed Maturity Plan as an Option (2/2)

Employer’s Investment Rs. 18,04,500

Assigned to the employee Notional Surrender Value is 19.76L

on the 5th policy year
Tax due at this stage for the employee is Rs. 6.16 L
post lock-in
Can defer tax payment till maturity

Rs. 47.88 lakhs will be paid to the employee and it will be taxable.
On Maturity Net tax payable will be adjusted with the tax amount if paid at the
time of assignment
1976548

If under exceptional  Maturity Benefit of Rs. 47.88 lakhs will be paid to the Employer post
circumstances policy is deducting TDS
not assigned till maturity  It will be considered as Business Income and will be taxable

Rs. 50L is paid to the employer and it is passed on

to the legal heir of the employee
Policy not Assigned Such proceeds received as gratuitous payment (ex-
gratia) from employer will be exempt from tax in the
hands of legal heirs – CBDT Circular 573
On Death

Policy Assigned Rs. 50L is paid to the legal heir of the employee and
will be taxable as income from other sources *Tax paid by the employee is
calculated at approx individual
income tax rate.
HDFC Life: For internal training purpose only, not for solicitation.
 Example 5
Power pitch for EE2: Take care of your employees and they will take care
of your business

Mrs. Chandana Seth runs a Interior designing company. She has employed 15 employees. She bought two
products under the Employer Employee scheme 2 (EE2) for her employees. The products are C2P Life and
Sanchay Plus.

One day her site manager dies

due to heart attack.
We settled the claim in record time
For all of her employees, and the total premium amount was
she pays a total premium of reduced for Mrs. Chandana Seth
20 lacs annually and saves the owner of the firm
tax of 6.60 lacs annually
Death Proceed of 1cr. was given
to the legal heir / widow of her This event boosted the morale
manager by HDFC Life. of the employees & trust for the
employer Mrs. Seth.
.

. .

Mrs. Seth Interior designing

firm made a big profit in that
The site manager earning 7 lacs and financial year
insured for 1 cr. dies due to heart
attack at the age of 37 years only

HDFC Life: For internal training purpose only, not for solicitation.
Documentation in EE

 Income Tax Returns (ITR) with Computation of Income (COI) / Form 16

 Audited Profit and Loss Account and Balance Sheet
 Board resolution
 Covering letter from the firm giving names of employees to be covered
 Undertaking from the employer
 Declaration by the employee
 Special conditions in prescribed format
 Employer-Employee questionnaire
 Form specifying lock-in period
 Consent letter from the employee related to DB
 Declaration cum indemnity from the employer related to passing on the death
benefits to the legal heir of the deceased employee

Conditions on Financials Required

1) ITR with computation of income of employer and employee*
2) Audited Accounts of employer along with audit report (if applicable)*
3) Proof of salary of employee - e.g. ITR with computation of income showing salary/Form 16/Bank Statement with salary
credit/Salary slips/Form 26AS of the employee

Note:
Shareholding of the life assured should not exceed 5%. MD / COO approval will be required for cases above share holding of 5%.
*Latest 3 years

HDFC Life: For internal training purpose only, not for solicitation.
Documentation in LTRP

 Annexure A - Undertaking from the employer

 Annexure B - Board resolution granting permission to apply for this plan

 Annexure C - Declaration from the employee (life to be assured)

 Annexure D - Details of employee covered in the scheme

 Annexure E - Assignment and re-assignment form with complete attestation

 Annexure F - Special conditions to be endorsed for assignment and re-assignment

HDFC Life: For internal training purpose only, not for solicitation.
Unedited views of our Tax
Department on EE2 & LTRP

Disclaimer:
The customer should seek advice from his CA
HDFC Life: For internal training purpose only, not for solicitation. or personal tax advisors w.r.t. the tax liabilities.
Important Areas
Employer Employee Scheme 2 (EE2) Long Term Reward Program (LTRP)
of the Schemes
Employer LTRP (Policy is taken by the employee on his life, immediately assigned to the
Employee EE2 (Policy is taken by the employer and assigned to the employee post employer and post completion of lock in period reassigned back to the
completion of lock in period) employee. The beneficiary is the nominee of the employee in case of death of
Lock - In period the employee.)

We understand that there would be an upfront ownership change Immediately upon issuance, the policy is assigned to the employer. Post
Assignment declaration collected, which will come into effect post lock-in and so the completion of the lock-in period the policy is re-assigned to the employee by
ownership changes post lock-in period the employer.
a) The then surrender value received by the employer, if any, will be liable to
On assignment to the employee, it is employer’s liability to deduct tax at tax in the hands of the employer
source u/s 192 of the Income tax Act,1961, on the surrender value of the b) On assignment to the employee, it is employer’s liability to deduct tax at
Tax on Assignment
policy i.e. the employee will have to pay tax on the then surrender value source u/s 192 of the Income tax Act,1961, on the surrender value of the
of the policy policy i.e. the employee will have to pay tax on the then surrender value
of the policy.
a) During pre assignment period, premiums paid by the employer should
a) First premium paid by the employer on behalf of the employee is treated
not be treated as perquisite.
as perquisite in the hands of the employee.
Perquisite Tax b) Premiums paid after assignment of the policy to the employee shall be
b) Subsequent premiums paid by the employer after assignment of the policy
taxable as perquisite u/s 17(2)(v) of the Income-tax Act, 1961, in the
to the employer shall not be taxable as perquisite.
hands of the employee
All the Premiums paid by the employer before assignment – May be
All the Premiums paid by the employer before assignment – May be allowed
allowed as deduction u/s 37(1) of the Income-tax Act, 1961 subject to
Section 37(1) as deduction u/s 37(1) of the Income-tax Act, 1961 subject to the conditions
the conditions stated therein and subject to tax authorities allowing the
stated therein and subject to tax authorities allowing the claim.
claim.
Tax implications for policies issued under EE2 will continue to remain the Tax implications for policies issued under LTRP will continue to remain the
ULIP Capital Gain
same from employer and employee perspective irrespective of whether same from employer and employee perspective irrespective of whether the
Taxation
the policy is a ULIP or a non ULIP policy is a ULIP or a non ULIP
a) If proceeds are received by the legal heir/nominee on death of the
employee it is taxable as "Income from other sources" in the hands of
the legal heir/nominee of the deceased employee.
b) If the proceeds are received by the employer on death of the
Proceeds are received by the legal heir/nominee on death of the employee
Death During Lock- employee, then it shall be taxable in the hands of the employer as
and it is taxable as "Income from other sources" in the hands of the legal
in Period business income.
heir/nominee of the deceased employee.
c) Any lump sum amount paid gratuitously/by way of compensation to
the widow or legal heirs of employee, on death of the employee by his
employer shall not be taxable as per the CBDT circular no. 573 dated
August 21, 1990. HDFC Life: For internal training purpose only, not for solicitation.
Important Areas of the
Employer Employee Scheme 2 (EE2) Long Term Reward Program (LTRP)
Schemes
Yes, the Insurer shall deduct tax at source @5% (with effect from Yes, the Insurer shall deduct tax at source @5% (with effect from
September 1, 2019) if PAN is provided by the policyholder, or @20% if September 1, 2019) if PAN is provided by the policyholder, or @20% if
TDS Applicable on Death PAN is not provided by the policyholder or is provided and not linked PAN is not provided by the policyholder or is provided and not linked
Benefit with Aadhaar. Tax deduction at source shall be @10% if PAN is with Aadhaar. Tax deduction at source shall be @10% if PAN is provided
provided and its status is a “specified person” as per section 206AB of and its status is a “specified person” as per section 206AB of the
the Income-tax Act, 1961. Income-tax Act, 1961.

Surrender During Lock-in The Surrender value received by the employer, if any, will be liable to The Surrender value received by the employer, if any, will be liable to
Period tax in the hands of the employer. tax in the hands of the employer.

a) Proceeds received by the legal heir/nominee on death of the a) Proceeds received by the legal heir/nominee on death of the
employee are taxable as "Income from other sources" in the hands employee are taxable as "Income from other sources" in the hands
of the legal heir/nominee of the deceased employee. TDS shall of the legal heir/nominee of the deceased employee. TDS shall
apply. apply.
Death post Lock-in Period
b) It is possible to take an argument that as tax has already been paid b) It is possible to take an argument that as tax has already been paid
on the surrender value, only the incremental income (i.e. Amount on the surrender value, only the incremental income (i.e. Amount
received on death Less Surrender value on which tax has been paid) received on death Less Surrender value on which tax has been paid)
ought to be taxable. ought to be taxable.

a) On maturity/surrender of the policy, will not get the section 10(10D) a) On maturity/surrender of the policy, will not get the section 10(10D)
of the Income-tax Act, 1961 benefit on account of the change in law of the Income-tax Act, 1961 benefit on account of the change in law
Surrender / Maturity Post
on and from April 1, 2014. on and from April 1, 2014.
Lockin Period
b) Therefore after maturity/on surrender, the maturity/surrender b) Therefore after maturity/on surrender, the maturity/surrender
proceeds shall be taxable. proceeds shall be taxable.

As the maturity/surrender proceeds are taxable, it is possible to take an As the maturity/surrender proceeds are taxable, it is possible to take an
Tax on Surrender / argument that as tax has already been paid on the surrender value, argument that as tax has already been paid on the surrender value,
Maturity only the incremental income (i.e. Amount received on Maturity less only the incremental income (i.e. Amount received on Maturity less
Surrender value on which tax has been paid) ought to be taxable. Surrender value on which tax has been paid) ought to be taxable.

Yes. the Insurer shall deduct tax at source @5% (with effect from Yes. the Insurer shall deduct tax at source @5% (with effect from
September 1, 2019) if PAN is provided by the policyholder, or @20% if September 1, 2019) if PAN is provided by the policyholder, or @20% if
TDS Applicable on Maturity
PAN is not provided by the policyholder or is provided and not linked PAN is not provided by the policyholder or is provided and not linked
/ Surrender/Survival
with Aadhaar. Tax deduction at source shall be @10% if PAN is with Aadhaar. Tax deduction at source shall be @10% if PAN is provided
Benefits
provided and its status is a “specified person” as per section 206AB of and its status is a “specified person” as per section 206AB of the
the Income-tax Act, 1961. Income-tax Act, 1961.
HDFC Life: For internal training purpose only, not for solicitation.
 Thank you!

HDFC Life: For internal training purpose only, not for solicitation.