Group Gratuity Insurance
Fund Gratuity Before It Falls Due
Gratuity is a promise every eligible employer makes, and the liability grows every year an employee stays. Paying it from cash flow when people retire or resign can strain the business, especially when several senior staff leave together. A group gratuity scheme managed by a life insurer lets you set money aside each year, earn returns on it and pay claims from the fund. MILES helps you compare insurers, understand charges and keep the scheme running smoothly.
Why Fund Gratuity With An Insurer
Liability Funded In Advance
Regular contributions build a fund, so gratuity is paid from the scheme rather than from working capital.
Fund Management
The life insurer invests the fund according to the scheme's chosen option, with returns credited as per the policy.
Actuarial Valuation Support
Insurers typically provide or arrange the actuarial valuation used to set contributions and support your accounts.
Life Cover Option
Some schemes add life cover so the full gratuity for past and future service is paid on an employee's death.
Faster Claim Payouts
Claims for leavers are paid from the fund on request, with standard forms and clear timelines.
Independent Broker Review
We compare charges, fund options and service across life insurers before you move or start a scheme.
What is group gratuity insurance?
Group gratuity insurance is a scheme in which a life insurer manages a fund that an employer builds to meet its gratuity liability to employees. The employer pays contributions based on an actuarial valuation, the insurer invests and administers the fund, and gratuity is paid from it when employees leave, retire or die.
It is one part of a wider employee benefits programme and is usually set up through a gratuity trust that holds the insurer's master policy.
The law behind gratuity
The Payment of Gratuity Act, 1972 requires covered establishments to pay gratuity to employees who leave after at least five years of continuous service. The five-year condition does not apply on death or disablement. For employees covered by the Act, gratuity is calculated as 15 days' last drawn wages for each completed year of service, using a 26-day month, subject to the statutory ceiling notified by the government.
The Act also allows the government to require employers to insure their gratuity liability or set up an approved fund. The Code on Social Security, 2020 consolidates the gratuity law, so check with your advisers how its rules apply to your establishment. Many employers pay a more generous benefit than the statutory minimum under their own rules.
How an insurer-managed scheme works
- The employer sets up a gratuity trust, with trustees and trust rules.
- The trust takes a group gratuity policy from a life insurer.
- An actuary values the liability based on salaries, service, attrition and salary growth.
- The employer contributes to cover past service and the cost of the coming year.
- The insurer invests the fund and credits returns as per the policy terms.
- When an employee leaves, the trust files a claim and the insurer pays from the fund.
Options to consider
| Option | How it works | Points to check |
|---|---|---|
| Traditional fund | Returns declared by the insurer, often with a minimum floor in the policy | Declared rate history, charges, any guarantee terms |
| Market-linked fund | Fund value moves with the chosen investment fund | Fund choices, fund management charge, volatility |
| With life cover | Pays gratuity including future service on death | Extra premium, cover limits, medical rules |
Returns are not guaranteed unless the policy states a guarantee. Past declared rates do not predict future ones.
Accounting and tax
Gratuity is a defined benefit obligation. Companies following AS 15 or Ind AS 19 need an actuarial valuation of the obligation and must report the fair value of any plan assets held by the fund. An insurer-managed fund does not change the accounting standard that applies, but it gives you audited plan assets and data for the valuation. Your auditors will advise on presentation. Tax treatment of contributions to an approved gratuity fund, and of gratuity received by employees, is subject to prevailing law.
Who needs it
- Companies whose gratuity liability is now large relative to annual profit or cash reserves
- Businesses expecting a wave of retirements among long-serving staff
- Employers with an unfunded provision in their books who want to match it with assets
- Firms with an existing scheme that has not been benchmarked on charges or service for several years
How MILES helps
- Compare life insurers: we set out fund options, charges, declared rate history and service standards side by side.
- Check the wording: we review surrender and transfer terms, market value adjustments and claim timelines before you commit.
- Place and transfer schemes: we coordinate with the trust, insurer and actuary when you start a scheme or move from another insurer.
- Ongoing support: we help with annual renewals, contribution notices and leaver claims, and pair the scheme with group term life cover where needed.
What we need for a proposal
- Employee data: date of birth, date of joining, current salary
- Your gratuity rules if they differ from the statutory formula
- Latest actuarial valuation report
- Existing trust deed and policy details, if any
Consider it alongside group superannuation for a complete retirement benefit review, or contact us to start.
Cover, exclusions and premiums depend on the insurer’s policy wording and underwriting. MILES Insurance Brokers Pvt. Ltd. is an IRDAI-licensed direct broker (Life & General, Reg. No. 954); the insurance is issued by the life insurer. Returns are not guaranteed unless stated in the policy, and tax benefits are subject to prevailing law. Insurance is the subject matter of solicitation.