Dear Shyamrao,
Compulsion is for payment of gratuity, not for insurance atall. Gratuity insurance is a policy of insurance business. They offer insurance policy to small employers based on the number of employees, their pay structure etc. and collect premia regularly. Whenever the gratuity becomes payable to any employee of the insured employer, the insurance company pays the gratuity (fulfills the gratuity liability of the said employer as required under the Payment of Gratuity Act, 1972) to the retired/parting employee or legal heirs of the deceased employee as the case may be. It is the choice of the employer either to pay the gratuity from his own funds or through a insurance policy.
Compulsion is for payment of gratuity, not for insurance atall. Gratuity insurance is a policy of insurance business. They offer insurance policy to small employers based on the number of employees, their pay structure etc. and collect premia regularly. Whenever the gratuity becomes payable to any employee of the insured employer, the insurance company pays the gratuity (fulfills the gratuity liability of the said employer as required under the Payment of Gratuity Act, 1972) to the retired/parting employee or legal heirs of the deceased employee as the case may be. It is the choice of the employer either to pay the gratuity from his own funds or through a insurance policy.