Paying LIC Premiums With Your EPF Account: Is It Right for You?

Need help to finance your LIC insurance premium due to a shortage of funds? Well, good news awaits you! You now have the option to use the money from your Employees’ Provident Fund (EPF) account to pay your LIC premium while being under a cash crunch. This facility can be availed while purchasing the LIC policy or paying the insurance premium. 

Form 14 can be submitted to EPFO to authorize the payment of LIC premium at the time of policy purchase or any point after the initial premium payment. This form allows the individuals to specify the details related to the premium payment and provide the necessary authorization for EPFO to carry out the payment process. It is an important document that facilitates the seamless payment of LIC premiums through the EPFO platform. 

Form 14 is a crucial application for financing a life insurance policy with LIC by utilizing funds from your EPF account and obtaining it from the EPFO website is a straightforward process. Once your application is approved, your LIC premium will be automatically deducted from your EPF account on or before the due date, ensuring seamless payment. 

Understanding EPF and LIC

The Employee Provident Fund Organization (EPFO) is a social security scheme established by the Government of India for private sector employees. In EPFO, 12% of the basic salary is contributed by both the employee and employer. The employer’s contribution is split into PF and a pension amount called EPS (Employee Pension Scheme). Upon retirement or leaving the job, employees can withdraw the entire PF amount and to qualify for a pension, one must be a member of EPFO for at least 10 years. Contributions to EPFO also offer tax benefits under section 80C. 

The Life Insurance Corporation (LIC) is a government subsidiary that offers a wide range of insurance products, including endowment plans, term plans and pension plans. As the largest life insurance company in India, LIC provides an opportunity for policyholders to claim tax benefits under section 80C of the Income Tax Act. 

Eligibility and Requirements for Using EPF for LIC Premiums

The updated eligibility criteria and other requirements for using EPF for LIC premiums have been discussed below - 

• Form 14 of EPFO permits the utilization of the Provident Fund account to finance a life insurance policy
• To request the remittance of your LIC premium from your EPF fund, you need to download Form 14 and complete it with the necessary details. Address the form to the Commissioner of the EPF
• Once your EPFO membership is no longer active, you won’t be able to use this function or have your LIC premium credited from your account balance. Therefore, it is important to ensure that you maintain the necessary account balance and continue your membership with the EPFO to take advantage of this feature
• To qualify for insurance premium financing from the fund, it is necessary to be a member of the EPFO for a minimum of 2 years

What Does the EPFO Form 14 Say?

The EPFO Form 14 contains all the detailed instructions regarding how you can link your EPF account with your LIC policy to finance your life insurance premium. The instructions are available in both Hindi and English languages. We have provided the instructions doc below. Read them carefully before taking the necessary steps. 

Step-by-Step Guide to Utilizing EPF for LIC Premiums

There are specific guidelines and steps to follow when using your EPF to pay LIC premiums. It can be a convenient method to ensure timely insurance payments and a detailed guide is necessary to understand the process thoroughly - 

Eligibility Criteria

• Minimum EPF Balance: Make sure your EPF account balance can cover at least 2 years’ worth of your LIC premium amount to ensure financial security. It is important to have a minimum EPF balance for long-term financial stability and to remain prepared for any unforeseen expenses in the future
• Application Timing: You can use EPF for purchasing LIC premiums, either when you initially buy the policy or at any time after making the first payment

Steps Involved

1. Obtain Form 14: Download Form 14 (Application for Financing of Life Insurance Policy) from the Employees' Provident Fund Organisation (EPFO) website https://www.epfindia.gov.in/. Form 14 is used for applying for the financing of a life insurance policy and it is an important document for EPF members who are seeking this benefit. Once you download the form, you can fill it out and submit it as per the instructions provided by EPFO
2. Complete Form 14: Fill out Form 14 with caution, ensuring you include important information such as your EPF account number, LIC policy details and the desired premium deduction amount
3. Attestation and Submission:
   • Get Form 14 attested by your employer (if applicable).
   • Submit the completed form to your EPFO office. You can also submit it electronically through the EPFO portal (if available).

Processing and Payment

Once the EPFO receives and processes your application, they will; deduct the authorized amount from your EPF account and transfer it directly to LIC to pay your premium on or before the due date. This streamlined process helps ensure that your premium is paid on time without any hassles. 

What are the Advantages of Paying LIC Premiums from Your EPF Account?

It is great that EPFO allows subscribers to pay LIC policy premiums directly from their EPF account. However, it is crucial to weigh the advantages and disadvantages of this facility before making a decision. Understanding the potential benefits and drawbacks will help in making an informed choice. 

• Prevents Policy Lapse: EPF funds can be used to prevent the policy from lapsing and losing its benefits. This is especially useful during financial hardships. Without life insurance coverage, you may also lose any accumulated savings. Therefore, using EPF funds can help ensure your LIC policy remains active
• Convenience: Setting up an automatic deduction through EPFO is a convenient way to ensure timely premium payments. It eliminates the risk of missing deadlines due to forgetfulness or busy schedules, providing peace of mind to the contributor. This automated process simplifies the payment process and helps maintain a consistent contribution towards retirement savings
• Flexibility: This facility can be utilized for all types of LIC policies, regardless of whether they are new or existing
• Tax Benefits: Both EPF contributions and LIC premiums are eligible for tax deductions under the Income Tax Act of 1961. Consulting a tax advisor is crucial for accurate calculations and maximizing potential tax savings
• Disciplined Savings: Automatic deductions from your EPF can help maintain your LIC policy and enforce disciplined saving habits, which is especially useful for those who find it challenging to save consistently. This approach can provide a structured way to ensure regular premium payments and build a savings habit over time
• Peace of Mind: During uncertain financial times, it is comforting to have peace of mind knowing that your family will be protected by an active LIC policy. This assurance allows you to feel secure or less anxious about your future. Knowing that you have taken steps to ensure their well-being provides a valuable sense of calm amidst the uncertainty

What are the Potential Drawbacks of Paying LIC Premiums with an EPF Account?

Before choosing to pay your LIC premiums from your EPF account, it is important to consider the potential drawbacks as well. Here are the key points to remember - 

• Using LIC funds from the EPF for LIC premiums can significantly impact the amount of money available for retirement. This is a major concern, particularly for individuals with a long time until retirement and a limited corpus of funds. Therefore, it is important to carefully consider the implications of using EPF funds for other purposes before making any decisions
• EPF account balances can vary based on salary. Insufficient funds in the EPF may lead to bounced LIC premiums, resulting in policy lapses. Lapsed policies mean losing life insurance coverage and potentially encountering difficulties in restoring the policy
• Managing both your LIC premium due dates and having enough funds in your EPF can be challenging, especially if you have a limited EPF balance or find it difficult to handle multiple financial obligations. It can add complexity to your financial management process, requiring extra attention and organization
• Using the EPF facility for LIC premiums limits the flexibility in meeting other insurance needs. This can be restrictive for individuals who require coverage from other insurance policies, thus reducing the overall benefits of the EPF facility
• It is important to consider that EPF provides a fixed interest rate that tends to be higher than many traditional savings accounts. Utilizing your EPF for LIC premiums would entail forgoing this fixed return, which is something worth taking into account 

Conclusion

Carefully weighing the pros and cons is crucial before using your EPF for LIC premiums. It can be a smart move for people experiencing temporary financial challenges or looking for a convenient method to guarantee on-time payments. However, those with a long time until retirement or limited retirement savings might want to consider other possibilities.

Note: Consult a financial advisor for personalized guidance tailored to your specific financial goals and situation.

Frequently Asked Questions (FAQs)

Q: Who is eligible to use their EPF account to pay LIC premiums?

A: To use your EPF for LIC premium payments, you must be an active EPF subscriber, typically applicable to salaried individuals in India with employer contributions. Additionally, there is a minimum balance requirement. Your EPF account balance at the time of application (through form 14) should cover at least 2 years’ worth of your LIC policy premiums

Q: Are there any restrictions on the type of LIC policy I can use EPF for?

A: No, there are no limitations on the type of LIC policy you can use your EPF for. This applies to all valid policies, regardless of whether they are term plans, money-back plans or endowment plans. As long as the policy is active and registered under your name, you can use your EPF for premium payments

Q: What happens if my EPF balance falls below the minimum required after submitting Form 14?

A: If your EPF balance falls below the required minimum after submitting Form 14, LIC will stop deducting premiums. You will be notified by the EPFO and it is your responsibility to make payments on time to prevent the policy from lapsing. To maintain an active policy, you can increase your EPF contributions or directly pay LIC

Q: Can I use my EPF to pay premiums for an LIC policy in someone else's name?

A: No, you cannot use your EPF to pay premiums for an LIC policy that is not in your name. The EPF account and the LIC policyholder’s name must match to ensure proper utilization of the EPF scheme benefits

Q: How long does the EPFO typically take to process Form 14?

A: The processing time for Form 14 at the EPFO office can vary depending on their workload, but it typically takes about 2 to 4 weeks to process and activate the automatic deductions from your EPF account

Q: Is there a limit on how much of my EPF balance I can use for LIC premiums?

A: There's no strict limit on using your EPF for LIC premiums, but it is important to have enough balance to cover at least 2 years’ premiums. It is advisable to maintain a healthy balance in your EPF to support your retirement planning

Author: Abhik Das