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Understanding EDLI: A Guide for Indian Salaried Employees

Picture of Team SaveTax.AI By  Team SaveTax.AI  ·  2 minute read

The Employees' Deposit Linked Insurance (EDLI) Scheme is a crucial but often overlooked insurance benefit provided to salaried employees in India. Operating under the Employee Provident Fund Organization (EPFO), this scheme provides life insurance coverage to employees who are members of the EPF scheme, offering financial security to their families in case of untimely death during service.

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Key Features of EDLI

Coverage Amount

  • Basic Coverage: Up to 20 times of last drawn monthly salary (wages plus DA)
  • Maximum Benefit: ₹7,00,000
  • Additional Benefit: Extra 20% of the eligible amount
  • Minimum Assured Benefit: ₹2,50,000

Premium Contribution

  • Employer's Contribution: 0.5% of monthly basic salary + DA
  • Maximum Premium Calculation Limit: ₹15,000 per month
  • Employee Contribution: Nil
How EDLI Works: Practical Examples

Example 1: Standard Coverage Calculation: Let's consider an employee with:

  • Monthly Basic Salary: ₹25,000
  • Date of Joining EPF: January 1, 2020
  • Last 12 months' average salary: ₹25,000

Coverage Calculation:

  • Basic Coverage = ₹25,000 × 20 = ₹5,00,000
  • Additional Benefit (20%) = ₹1,00,000
  • Total Coverage = ₹6,00,000

Example 2: Maximum Coverage Scenario: For an employee with:

  • Monthly Basic Salary: ₹40,000
  • Average salary above ₹35,000

Coverage Calculation:

  • Basic Coverage = ₹35,000 × 20 = ₹7,00,000 (capped at maximum)
  • Additional Benefit (20%) = ₹1,40,000
  • Total Maximum Payout = ₹7,00,000 (capped)

Example 3: Minimum Coverage Scenario: For an employee with:

  • Monthly Basic Salary: ₹10,000

Coverage Calculation:

  • Basic Coverage = ₹10,000 × 20 = ₹2,00,000
  • As this is below minimum assured benefit
  • Final Coverage = ₹2,50,000 (minimum assured)
Premium Cost to Employer

Monthly Premium Calculation Example: For an employee with basic salary of ₹25,000:

  • Monthly Premium = ₹25,000 × 0.5% = ₹125 per month
  • Annual Cost to Employer = ₹1,500
Eligibility and Conditions

Primary Requirements

  • Must be an EPF member
  • Employer must be registered with EPFO
  • Employee should have active EPF account

Service Conditions

  • No minimum service period required
  • Coverage starts from day one of EPF membership
  • Continues until employment termination or retirement
Claim Process

Required Documents

  • Form 5IF (Claim Form)
  • Death Certificate
  • EPF Account Details
  • Proof of Identity and Address
  • Bank Account Details of Nominees

Claim Settlement Timeline

  • Normal Cases: 20-30 days
  • Complex Cases: Up to 90 days
Common Scenarios and Coverage

Scenario 1: Multiple Employment Changes

  • Previous Employer: EPF Member
  • New Employer: Also EPF Member
  • Coverage: Continues without interruption

Scenario 2: Partial Employment Period

  • Employment Period: 8 months
  • EPF Membership: Active
  • Coverage: Full eligible amount
Special Cases and Considerations

International Workers

  • Eligible for EDLI coverage
  • Same benefits as domestic workers
  • Must have active EPF account

Contract Employees

  • Eligible if covered under EPF
  • Coverage based on actual salary
  • Must have regular monthly wages
Tax Implications

For Employers

  • Premium paid is tax-deductible business expense
  • Falls under Section 37(1) of Income Tax Act

For Employees

  • No tax on premium as no contribution required
  • Death benefit is tax-free under Section 10(10D)
Comparison with Other Insurance Options

EDLI vs Term Insurance

EDLI:

  • No premium cost to employee
  • Maximum coverage: ₹7,00,000
  • No medical examination

Term Insurance:

  • Premium paid by employee
  • Higher coverage available
  • Medical examination required
Best Practices for Employees

Documentation

  • Keep EPF details updated
  • Maintain nominee information
  • Regular verification of service records

Additional Coverage Assessment

  • Evaluate if EDLI coverage is sufficient
  • Consider supplementary term insurance
  • Review coverage annually

Nominee Updates

  • Keep nominee details current
  • Inform dependents about coverage
  • Share relevant documentation
Recent Changes and Updates

2021 Amendments

  • Maximum benefit increased to ₹7,00,000
  • Minimum assured benefit: ₹2,50,000
  • Additional 20% bonus introduced

 

EDLI serves as a valuable basic life insurance coverage for salaried employees, provided at no cost to them. While the coverage might not be sufficient as standalone life insurance, it offers significant financial protection to families, especially for employees in lower salary brackets. Employees should:

  • Verify their EDLI coverage
  • Keep nomination details updated
  • Consider supplementary insurance based on needs
  • Ensure families are aware of this benefit

Remember to maintain proper documentation and keep beneficiaries informed about the claim process to ensure smooth benefit disbursement when needed.