The Importance Of Cash-Deposit (CD) Balance In Health Insurance

Have you ever wondered how corporations retain their employees and prevent them from abandoning ship soon after onboarding?

There are several perks that companies provide but there is one that stands out above the rest: Employee Health Insurance. Why? Because of the level of safety it provides to team members for their health.

When it comes to Employee Health Insurance, there are a few practices that a company can undertake to ensure smoother claim experiences for its employees.

One such practice is maintaining a minimum CD Balance.

Why is cd balance in insurance so important? Continue reading to find out!

Let's begin by answering a few frequently asked questions:

What is the meaning of a Cash Deposit (CD) account?

Cash Deposit (CD) accounts are created for a company with its insurer for the purpose of insurance-related transactions. It is a non-interest-bearing account, with all the premium payments made by the company being deposited into this account.

How does a CD account function?

As mentioned above the CD account is a non-interest-bearing account. When an employee policy is purchased via endorsement by any company, an amount equivalent to the premium is debited from the CD account. Similarly, when an employee is removed from the employee health insurance plan via endorsement, the refund is credited to this account.

Nova's take on why maintaining a CD Balance in insurance is important:

1. It's more beneficial for the employees of the company- Insurance companies can initiate a cover for a new employee only after the premium payment has been done for that employee. Employees expect the insurance cover to start on the same day as they join the company. If you maintain a healthy CD account balance, the newly added employees can enjoy cover from the date of joining!
2. The downside of low CD Balance- If your CD account balance is lower than the premium required to activate the cover for a new employee, you would have an employee uncovered for a few days, and your company/employees may be at risk.

Now that we have explained why maintaining CD Balance is essential, here are some important guidelines provided by IRDAI that companies should keep in mind:

IRDAI Guidelines:

Under Clause 64VB of the Insurance Act of 1938 (IRDAI Article) -

1. No insurer shall assume any risk in India in respect of any insurance business on which premium is not ordinarily payable outside India unless and until the premium payable is received by him or is guaranteed to be paid by such person in such manner and within such time as may be prescribed or unless and until a deposit of such amount as may be prescribed, is made in advance in the prescribed manner.
2. For the purposes of this section, in the case of risks for which premium can be ascertained in advance, the risk may be assumed not earlier than the date on which the premium has been paid in cash or by cheque to the insurer.

We hope you can now understand the level of importance CD Balance holds when it comes to Employee Health Insurance.

Moving on to the next important question!

How much Minimum CD Balance should a company maintain to avoid coverage-related risks?

Maintain a minimum balance of 20% of inception premium or enough premium to cover 2-3 families. Why? So that if any medical issue were to occur with a new employee within the first week of joining, we would be able to cover them under insurance, and the chance of claim rejection would be minimal.

To summarise…

Maintaining a CD balance in insurance can help you safeguard the health of new employees by extending coverage that begins as soon as they join your team.

In case you have further questions about CD balance or group health insurance, feel free to reach out to us and we’ll get back to you.