Types Of Endorsement Scales In Group Health Insurance

What Is An Endorsement In Group Health Insurance?

An endorsement in a group health insurance is an additional policy to an existing insurance policy in order to alter the scope and terms of the original insurance policy. When an organization buys group health insurance for its employees, a standard policy is usually offered to the employees. 

A rider or an endorsement can help enhance the policy’s coverage or update details for coverage of the policyholders; in this case, the employees. An endorsement can be issued at the time of purchase, during the running term of the policy term or at the time of renewal.

Types Of Endorsement In Group Health Insurance

Before understanding the common types of endorsement scales in group health insurance, let us first learn about the types of endorsement. Endorsements can be broadly classified into two, financial and non-financial. Financial endorsements are those which affect the premium, whereas non-financial endorsements are those which do not affect the premium amount.

Some of the Non-financial Endorsements Include:

• Change in the name, gender, address and contact detail of the insured person
• Change in the relationship of the insured person with the proposer
• Change in the nominee details

Some of the Financial Endorsements Which May Affect the Premium Amount Include:

• Deletion of the insured member(s)
• Change in the age of the insured member
• Addition of a member
• Addition of any specific benefit opted by the insured

In group health insurance, the employees or the employer might want to increase the policy coverage and opt for an additional benefit, leading to an increase in premium. For example, a company offers its employees a standard group health plan. During the policy term, the employer decides to increase the coverage by adding an OPD Cover. Now, the premium amount the employer generally pays is thus increased due to the additional benefit.

Endorsement Scales In Group Health Insurance

The two most common types of endorsement scales in group medical insurances are:

Pro-rata: Pro-rata is a common method in determining the premium amount in case of a partial insurance policy or endorsement. An insurance policy is usually taken for 12 months; if a policy is required for a shorter duration, the premium is calculated on a pro-rata basis. Similarly, if there are any financial endorsements to the policy, the insurer would change the premium amount. This change is usually done on a pro-rata basis.

For example, in group health insurance, the annual premium paid for an employee is Rs 5,000. If there is an addition to the group plan after 6 months then the premium would now be calculated for half of the tenure, that is, at 50%. 

So, the premium amount would now be Rs 2,500.

Short-period Scale: A short rate scale occurs when the policyholder cancels an insurance policy during the policy period. It is a penalty levied by the insurance company on the insured for the early closure of the policy. In general, the average cost of insurance is higher for the policies of a shorter tenure compared to the ones with a longer term. 

Thus, in a short-period scale calculation, the policyholder pays more premium for the insurance cover they took up until that point vis-à-vis if they had continued to stay in the policy for a full term. When a policy is discontinued or cancelled, the administrative costs and penalties are deducted from any unearned premiums.

For example: If the policyholder has paid Rs 1000 for a 12-month policy and cancels after three months, he should be getting back Rs 7,500, but if the company uses a short-period scale, the policyholder will not receive the total amount that is Rs 7,500. The deduction rate will depend on the type of policy and the table used by the insurer.

Conclusion:

Between the two endorsement scales in group health insurance, the short-period scale is applied chiefly across the industry in case the insured closes the policy. As an informed decision-maker, it is always advisable to clarify the type of endorsement scale used by the group health insurance policy.