An insurance policy is not set in stone. There are several circumstances in which the terms and conditions of an insurance policy may need to be changed. Some of the reasons may include a change in the relationship between the proposer and the insured, a change in the details of the nominee, an addition or subtraction of a member in the policy, and so on.
But how will such changes be made to a policy without making it a huge hassle which involves terminating the original agreement and entering into a new one?
The answer to this question is endorsements.
In this article, we’ll discuss everything you need to know about group health insurance endorsements.
What’s on this page?
Simply put, an endorsement is a document that changes certain terms and conditions of an existing insurance policy. The endorsement takes the form of a new insurance policy on top of the existing policy.
Endorsements are highly common in group health insurance policies. This is because when a company avails a group health insurance policy, a standard agreement is offered to the employees of the company. However, over time, changes may need to be made to the standard agreement to reflect the needs and circumstances of the individual employees.
Endorsements are also called riders in the insurance industry. An endorsement or a rider may be needed for a variety of reasons. An endorsement can be made at the time of the purchase of the policy, at the time of renewal of the policy, or at any time while the policy is ongoing.
There are two primary types of group health insurance endorsements. An endorsement can be a financial endorsement or a non-financial endorsement.
A financial endorsement is an endorsement that changes the premium of the insurance policy. There may be several reasons for a financial endorsement. Some of these reasons are:
· An addition or deletion of an insured person. If a person is added or subtracted from the policy, the premium of the policy will go up or down.
· A change in the age of the insured person. Usually, the higher the age of the insured person, the higher the premium that will need to be paid.
· An addition or subtraction of a specific benefit under the policy. For example, a person may choose to opt for ambulance cover or opt-out of a specific disease cover like a coronavirus cover.
A non-financial endorsement is an endorsement that does not change the premium of the policy. There are several reasons for non-financial endorsements some of which are:
· A change in the name, address, gender, or contact details of the insured individual.
· A change in the details (name, address, contact details) of a nominee under the policy.
· A change in the relationship between the proposer and the individual who is insured.
An endorsement scale is a method used to calculate the change in the premium of a group health insurance due to a financial endorsement.
There are two commonly used methods used by insurance companies to calculate the change in the premium depending on their internal rules:
Pro-Rate Scale – The financial endorsement changes the premium of the policy on a pro-rate basis. If the financial endorsement is applicable for six months, then the premium of the policy is only changed for six months. The applicable premium of 12 months is divided by half to arrive at the desired figure.
For example, suppose that a company pays a premium of Rs. 10,000 under their group insurance policy for each employee. After six months of availing the policy, a new employee has to be added to the policy. In such a case, the premium for the new employee will be calculated on a pro-rate basis. Hence, the additional premium which will need to be paid for the new employee would be Rs. 5,000.
Short-Period Scale – The short-period scale is a more advanced way of calculating the change in premium due to a financial endorsement. The primary reason why the short-period scale was developed was that insurance companies undergo higher risk and costs for insurance of shorter periods than an insurance of a longer period. This difference needs to be accounted for when calculating the premium after a financial endorsement.
Continuing the above example, if a short-period scale is used, the additional premium that the company would need to pay would be more than Rs. 5,000.
Before signing up for a group health insurance policy, you should check the endorsement scale that is being used by the insurance company. If the company uses a short-period scale, then financial endorsements may end up being more expensive for you. However, a short-period scale may be a more accurate reflection of the cost associated with the insurance policy.