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India Insurance Guide

At-a-glance

•Employee-related compulsory covers = ESI, EPF & EDLI (based on employee count and wage thresholds).
•Motor Third-Party Liability is mandatory for all company vehicles.
•Public Liability Insurance is required for businesses handling hazardous substances.
•Workmen's Compensation is mandatory for employees not covered by ESI.
•Other covers (property, cyber, professional indemnity, etc.) remain recommended rather than statutory.

Mandatory & Profession-Specific Business Insurance Requirements

Comprehensive overview of insurance requirements for businesses operating in India

Insurance Type	Who Must Insure	Key Legal Basis & Authority	Minimum Coverage	Penalties for Non-compliance
Employees' State Insurance (ESI)	All establishments (factories, shops, etc.) with ≥10 employees (threshold varies by state) and employee wages ≤ ₹21,000/month	Employees' State Insurance Act, 1948 – administered by ESIC (Ministry of Labour & Employment)Official Source	Employee and employer contributions fund medical care, cash benefits, disability and dependents' benefits for work-related contingencies	12% annual interest on late contributions plus damages up to 25% of arrears; imprisonment up to 2 years and ₹5,000 fine for failure to deposit contributions
Employees' Provident Fund & EDLI	All establishments with ≥20 employees must enroll in EPF. Mandatory for employees earning ≤ ₹15,000/month	Employees' Provident Funds & MP Act, 1952 – administered by EPFO (Ministry of Labour)Official Source	12% of wages contributed by employer and employee to provident fund (with 0.5% of wages by employer towards EDLI up to ₹15,000 wage)	Penalty interest 12% p.a. on late PF deposits, plus damages 5–25% of arrears; criminal charges for willful evasion
Workmen's/Employee's Compensation	Every employer is liable for work-related injury or death of employees not covered by ESI	Employee's Compensation Act, 1923 (formerly Workmen's Compensation Act) – enforced by state Labour CommissionersOfficial Source	Statutory compensation for death or disability based on the worker's wage and age (e.g. death benefit ≈50% of monthly wage × factor 228.54, subject to ₹1,20,000 minimum)	Must be paid within 30 days of accident; otherwise 12% per annum interest applies; Commissioner can impose a further penalty up to 50% of the due amount
Motor Third-Party Liability Insurance	Any business-owned motor vehicle on public roads	Motor Vehicles Act, 1988, Section 146 – regulated by Ministry of Road Transport & HighwaysOfficial Source	Continuous coverage for third-party bodily injury/death liability (unlimited as per law) and third-party property damage (capped at ₹7.5 lakh under MV Act)	Criminal offense with up to 3 months imprisonment or ₹2,000 fine for first offense; vehicle registration can be suspended
Public Liability Insurance (Hazardous Materials)	Owners of industrial plants or businesses handling "hazardous substances" above the quantity notified under law	Public Liability Insurance Act, 1991 – enforced by Ministry of Environment, Forest and Climate ChangeOfficial Source	A "Public Liability Insurance" policy covering immediate relief compensation to the public for death, injury or property damage from accidents involving hazardous substances	Penalties include fines up to ₹50,000 and up to 6 months imprisonment; authorities may order cessation of operations

Regulators & Agencies Governing SME Insurance Compliance

Key regulatory bodies overseeing insurance requirements for businesses in India

Insurance Regulatory and Development Authority of India (IRDAI)

National insurance sector regulator established by Parliament to protect policyholders' interests and regulate the insurance industry in India.

•Official Website: irdai.gov.in

•Key Mandates: IRDAI enforces provisions of the Motor Vehicles Act which makes third-party liability insurance mandatory for all vehicles. It also ensures availability of other legally required covers like Public Liability Insurance for hazardous industries.

•SME Resources: IRDAI provides standard product brochures like Bharat Sookshma Udyam Suraksha for property insurance designed specifically for MSMEs.

Ministry of Labour and Employment

Oversees several compulsory insurance and social-insurance schemes for employees to ensure businesses protect their workers.

•Official Website: labour.gov.in

•Key Programs:

-Employees' State Insurance (ESI): Applicable to establishments with 10+ employees, providing comprehensive medical care and benefits. Administered by ESIC (esic.nic.in).

-Employees' Compensation Act: Mandates compensation for work-related injuries or death for employees not covered by ESI.

-Employees' Provident Fund & EDLI: Establishments with 20+ employees must register with EPFO (epfindia.gov.in). Includes mandatory life insurance through EDLI.

Ministry of Road Transport and Highways

Administers the Motor Vehicles Act, 1988 which imposes mandatory insurance requirements for vehicles.

•Official Website: morth.nic.in

•Key Mandate: Motor Third-Party Liability (TPL) Insurance is legally compulsory for any vehicle operating on public roads. This requirement is uniform across India.

•Enforcement: Enforced by Regional Transport Offices (RTOs) and traffic police. The VAHAN portal (national vehicle database) is linked with insurers to record policy details.

Sector-Specific Regulators

Ministry of Environment, Forest and Climate Change

•Public Liability Insurance Act: Requires entities dealing with "hazardous substances" to maintain public liability insurance. Official website: moef.gov.in

Construction Sector

•Building and Other Construction Workers (BOCW) Act: Enforced by state BOCW Welfare Boards, requires employers to register construction workers and pay a cess which funds accident compensation.

•Real Estate Regulatory Authorities (RERA): Requires real estate project developers to obtain insurance for the project, including land title and construction period.

Tourism and Hospitality Sector

•Adventure Tourism: Ministry of Tourism guidelines require operators to have public liability insurance and personal accident insurance for participants and staff.

Compliance Portals for SMEs

Udyam Registration Portal

Official portal for MSME registration that provides useful documents and circulars.

udyamregistration.gov.in

Shram Suvidha Portal

One-stop online registration for EPF, ESI, and other labour laws.

shramsuvidha.gov.in

ESIC & EPFO Online

Dedicated employer portals with step-by-step guides on registration and compliance.

esic.nic.in epfindia.gov.in

IRDAI Policyholder Education

Simple explanations of various insurance types in plain language.

policyholder.gov.in

Risks of Being Uninsured

Employees' State Insurance (ESI)

Non-compliance can result in 12% annual interest on late contributions plus damages up to 25% of arrears. Serious violations can lead to imprisonment up to 2 years and fines. Employers remain liable for all benefits that would have been covered.

Employees' Provident Fund (EPF)

Penalty interest of 12% per annum on late PF deposits, plus damages of 5-25% of arrears. Willful evasion can result in criminal charges with up to 3 years imprisonment under the EPF Act.

Motor Vehicle Insurance

Driving a vehicle without valid third-party insurance is a criminal offense with penalties including up to 3 months imprisonment or ₹2,000 fine for first offense. Vehicle registration can be suspended, and the business faces unlimited liability for accidents.

Public Liability Insurance (Hazardous Materials)

Operating a hazardous site without this insurance violates the Public Liability Insurance Act. Penalties include fines up to ₹50,000 and up to 6 months imprisonment. Authorities may also order cessation of operations until proper insurance is in place.

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