How are Group Health Insurance Premiums Calculated in India?



The higher the risk associated with an insurance policy, the higher the premium that the insurance company will charge.

For example, the premium of health insurance for a twenty-year-old will be much less than the health insurance premium for a sixty-year-old. This is because the chances of a twenty-year-old contracting a serious illness are much less than that of a sixty-year-old.

The premium of a group health insurance policy depends on a variety of factors. In fact, an entire profession, called actuaries, is dedicated to calculating the premium of insurance policies.

In this article, we’ll cover some of the factors that go into calculating group health insurance premiums.  

Total Sum Insured on the Policy

The higher the sum insured of a policy, the higher the premium will be. The sum insured refers to the maximum amount that can be claimed from the insurance company in case a covered event occurs.

For example, if a policy has a sum insured of Rs. 5 lakhs and the policyholder incurs medical costs of Rs. 10 lakhs, then the policyholder can only claim a maximum of Rs. 5 lakhs from the insurance company, regardless of the actual amount of expenditure.

Since a higher sum insured increases the potential risk of the insurance company, the GMC premium for a higher sum insured is also higher.   

A company can opt for a lower sum insured for their employees if they want to reduce the insurance cost. However, it is advisable to have a sum insured that can adequately cover employees in case of a medical emergency.

Claim History of the Company

The claim history is highly relevant when renewing an existing policy.

If several claims have been made against a group policy during the previous year, then the insurance company will want to charge a higher premium for renewing the same policy. In contrast, if the number of claims was low or close to zero, then the insurance company may be willing to charge a lower premium.

The claim history is important because higher claims show that the risk associated with the policy is higher for the insurance company. As we have already mentioned, higher risk means higher premiums.

Number of People Covered

Every group health insurance policy is not the same. In fact, there can be vast differences between two group health insurance policies even if the sum insured is the same.

For example, one policy may only cover the employee. Another policy may only cover the employee, their spouse, and their children. A third policy may cover the parents of the employee as well. These people are known as the dependents of the policyholder.

The higher the number of people covered under a policy, the higher the premium that the insurance company will charge. This is because more people can mean more claims against the insurance company.

Further, if a company has 500 employees, then it will need to pay a much higher premium than a company that has just 50 employees. The premium will be directly proportional to the number of people covered under the policy.

Average Age of the Insured

As mentioned in the introduction, the age of the insured can be a major factor when calculating the premium of a health insurance policy. The higher the age of the insurance, the higher the premium will be. This is large because an older person has a higher risk of experiencing a severe medical condition when compared to a younger person.

If you’re opting for a group health insurance policy, the age of all the policyholders will need to be disclosed. The insurance company will take the average age of the employees into account when calculating the GMC premium 2022 for the policy.

Type of Work of the Company

The employees of certain companies work in harsher conditions than employees of other companies. If the risk to the health of the employees is higher due to the working conditions, then the insurance company will need to charge a higher premium.

For example, if there is a gold mining company, then they will have lots of employees who work in the mines. Mining is very hard work and also risky for miners. Working in a gold mine can lead to several adverse health effects. The premium of a group insurance policy for such employees will be significantly higher because the number of claims is likely to be higher.

In contrast, if a company develops software, then its employees will work in relatively safe working conditions. The premium of a group policy for such employees will be lower.

Wrapping Up

A lot of factors can affect the premium of a group health insurance policy. The general rule of thumb is that higher risk for the insurance company will mean higher premiums for the company.

Certain insurance companies have a group health insurance premium calculator available on their websites so that you can gain an idea of the cost involved.

By knowing the factors which lead to higher premiums, companies can take proactive steps to lower the premiums such as signing up employees for preventative health check-ups.

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Susheel Agarwal

Susheel is the CEO of Ethika Insurance Broking P Ltd. This company, which has a current value of 10 million dollars, was bootstrapped by him and two of his friends. He attributes his success to his ability to inspire others to seek happiness at work.