How Do You Budget for Insurance in HR? Comparing ESI and Group Health Policies

Provision for Insurance Cost in HR Budget

Often, I have been asked how to make a provision for insurance costs in the HR budget. What would be a reasonable cost? Is ESI better than a group health policy?

Insurance Budgeting for HR in Bengaluru, India

When it comes to budgeting for insurance costs in HR, especially in Bengaluru, India, it's essential to consider various factors to determine a reasonable amount. Here are some practical insights to guide you through this process:

1. Determining Reasonable Cost:
- Start by analyzing the previous insurance policy costs if available. This can serve as a benchmark for estimating the budget.
- Consider factors like sum assured, coverages, employee demographics, and location to tailor the insurance budget accurately.
- For new companies without historical data, a useful benchmark can be the contribution rate under the ESI Act. The combined contribution under ESI is 4.00% of wages (3.75% by the employer and 0.75% by the employee), irrespective of the Rs. 21,000 salary cut-off.

2. ESI vs. Group Health Policy:
- ESI is a statutory requirement for specific industries or areas, mandating enrollment with ESI authorities. It provides essential health coverage to employees.
- While ESI is mandatory, additional coverage through a group health policy can offer more comprehensive benefits tailored to the organization's needs.
- It's advisable to supplement ESI with personal accident coverage for enhanced protection.

3. Budgeting Considerations:
- The insurance premium will vary based on factors like group size, chosen coverage options, and specific requirements of the organization.
- Ensure to factor in potential variations in costs based on the selected insurance coverage and the employee profile.

4. Practical Approach:
- Create a detailed breakdown of insurance costs based on the organization's unique requirements and employee demographics.
- Regularly review and adjust the insurance budget to align with changing needs and market trends.

In summary, while ESI provides a basic level of coverage, supplementing it with a group health policy can offer more tailored benefits. By considering key factors and benchmarks, you can develop a reasonable insurance budget that meets the organization's needs effectively.