Social security schemes are designed to safeguard the bottom rungs and working class in a given society. For example, unemployment pay-outs ensure that people who lose jobs have some financial cushion to fall back on until they find another employment. In India, employment, health, retirement, childcare benefits, girl child benefits like Sukanya Samriddhi Yojana and food security are broadly covered under social security schemes.
Employment guarantee schemes such as the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) provide for at least 120 days of employment per household in a given year. Retirement schemes such as the Atal Pension Yojana (APY) support retired citizens with a guaranteed pension that will help sustain old age when income from employment ceases to come in. Similarly, ESI or Employees’ State Insurance, CGHS (Central Government Health Scheme) are there to provide a financial support structure for healthcare.
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What is ESI?
Healthcare is an area of concern given the steep increase in the cost of private healthcare and uncertainties due to the emergence of newer diseases. The Employees’ State Insurance (ESI) Corporation offers healthcare support at its networked dispensaries and hospitals in association with the respective state governments. Employees drawing below Rs.21000 per month as wages are eligible for an ESI cover. ESI covers the following:
1. Medical Care
2. Sickness Benefit
3. Maternity Benefit
4. Disablement Benefit
5. Dependants Benefit
6. Funeral and Confinement Expenses
How is ESI Calculated?
ESI cover is provided on the contribution of a nominal 0.75% of the wage by the employee whereas the larger 3.25% chunk is borne by the employer. The amount of contribution depends on the total wages earned per month. As mentioned earlier, the upper limit on wages, to be eligible for ESI, is Rs.21000 per month.
Ramesh earns Rs. 18,000 working in a pharmaceutical manufacturing plant.
- Ramesh’ contribution: 0.75%*Rs.18000 = Rs. 135
- Employer contribution: 3.25%*Rs.18000 = Rs. 585
A total contribution of Rs. 720 will be made and the employer is accountable for depositing the amount with the ESIC in the same calendar month.
Who is Eligible for ESI?
Employees working in organizations established under Factory Act and Shops & Establishments Act are eligible to be covered under ESI provided their monthly wages do not exceed Rs. 21,000 and their employer has 10 or more employees registered on the payroll.
What if you are no Longer Eligible for ESI?
When you started your career, your monthly wage may have been Rs. 21,000 or lower which made you eligible for benefits under the ESI act. Over the years, you would have progressed in your organization, received increments and climbed the corporate ladder. Your monthly wage, now, does not entitle you to this social security benefit provided by ESI.
However, it does not mean you have to go without a backup for funding emergency medical treatments. Once out of the eligibility criteria for social security schemes like ESI, you should start considering commercial schemes. You can easily secure a good Mediclaim health insurance for the family for Rs 157 a month. Rs 157 would be your contribution to ESI if your monthly wage is Rs 21,001, i.e., just out of the ESI limit.
Once your health is secured, you must look at other aspects of life where there is a risk and cover those with relevant life insurance policies. Some of these are listed below:
i. Term Life Insurance:A term plan provides affordable financial safety for your family. It is a risk cover to give your family financial protection in case of your unfortunate, untimely demise. They will receive the Sum Assured to help them manage expenses during your absence. With increasing life spans and equally increasing tenures of term insurance, these plans are also used to create an inheritance too. If you have a term cover of Rs. 1 Crore and you pass away at 72, your nominee will receive this amount.
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ii. Guaranteed Savings Plan:Guaranteed Savings Plans work best if you are looking for pay-outs to match future expenses at specific milestones. Guaranteed savings plans are ideal for you if you are looking to build wealth safely.
iii. Unit Linked Insurance Plans (ULIPs):ULIPs give you options to invest in both debt and equity instruments because of which you benefit from the higher returns from equity while having the safety of debt.
Social security schemes such as ESI are excellent options to protect yourself and avail healthcare facilities with a nominal investment from your salary. However, broader health insurance plans give you many more benefits. You must consider upgrading to a health insurance plan when you can.
Similarly, life insurance plans, Public Provident Fund (PPF) are savings schemes that build a habit of saving among the working class. These schemes help you save tax, grow your savings and build a better future for your family. The Payment of Gratuity Act encourages employees to stay long within an organization and reap loyalty rewards.Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised to exercise their caution and not to rely on the contents of the article as conclusive in nature. Readers should research further or consult an expert in this regard.