Cash Deposit (CD) Balance in Group Health Insurance

Insurance is a sector full of jargon and new concepts. But it doesn’t have to be hard and we are here to ensure that. This blog talks about one such concept, Cash Deposit (CD) balance in health insurance.

What is a CD balance in insurance?

A CD balance refers to the Cash Deposit balance maintained by the employer with the insurer. It applies to group health insurance policies. It functions like a prepaid account used to manage premium payments and facilitate adding or removing employees from the group plan. This prepaid account is known as a CD account.

What is a cash deposit (CD) account?

A cash deposit account is an account that is created for every company that buys group insurance to carry out insurance-related payments. This is a non-interest-bearing account.

Why is a cash deposit account required?

Let’s understand the need for a cash deposit account better through Anamika, HR of the organization XYZ,  who had newly purchased a group health insurance for her employees in May 2022.

In the company XYZ, Amit is resigning in May 2022 and Kanchan is joining in August. When Amit leaves, his group health insurance policy gets terminated. So the amount that was paid as a premium for him needs to get credited back on a pro-rata basis.

Meanwhile, Kanchan joining the company in August needs to get added to the policy. To make all of these transactions easy, we have a CD account. With this account, the insurer can put in money when employees leave and HRs can put in money to get new joiners added to the policy.

So, for Anamika, the CD balance account is a space where she has her funds stored to make the endorsement process much simpler!

Benefits of maintaining a CD account:

• Ensures smooth employee onboarding/offboarding without delays.
• Prevents compliance risks under the Insurance Act.
• Reduces manual back-and-forth with insurers.
• Provides financial predictability for HR and finance teams.
• Guarantees employees are covered from day one.

How does a Cash Deposit balance (CD) account function?

The CD balance account streamlines the functions of the financial transactions between the employer who has purchased the group health insurance plan and the insurance company which the plan is purchased from. 

The CD balance account functions in the following way.

Firstly, the employer makes an initial deposit into the CD account. This deposit serves as a buffer to cover initial expenses and fluctuations in employee enrollment.

Secondly, when the HR department enrolls new employees in the group health plan, the premium amount for those employees is deducted from the CD balance account. Now this eliminates the need for the company to make individual payments for each employee, simplifying the process.

Conversely, when an employee leaves the company, their portion of the premium needs to be credited back to the CD balance account. 

It's important to note that CD balance accounts are not interest-bearing accounts. The employer doesn't earn any interest on the funds deposited in the account.

Now let us make it easier to understand by taking a real-life example and how this works using the Pazcare platform.

How does a CD balance account function in Pazcare?

Pazcare’s HR dashboard comes with a comprehensive CD balance feature that lets HRs check their current CD balance and plan accordingly with the finance team. To understand how it functions, let’s first get to know what is premium rater.

A premium rater is like a rate card given by the insurer that specifies the premium per life. Endorsements are based on premium rater given by the insurer. 

And there are two types of premium raters.

Based on demography - The insurer will give you a premium rater card that will tell you how much is the premium for an employee of particular demography. For example, employees below 30 can have a lesser premium than employees above 30.

A flat premium - All the premiums are the same for all employees.

All the premiums are pro-rata basis. For instance, let's assume the premium is Rs 200 per month. As Kanchan is joining only in August, 3 months after the policy was bought, HR has to pay 200x9 months. This might be overwhelming. 

Group health insurance comes with a lot of transactions. But a load of endorsements gets handled safely and smoothly through the CD balance account. That’s why Pazcare’s HR dashboard comes with a built-in calculator. You can just put in the number of people leaving and joining and the calculator will tell you the amount to be credited or debited.

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Check this: Group health insurance premium calculator

What is the minimum CD balance required in group health insurance?

It is suggested that a minimum of 10% to 30% of the total premium should be kept constant as the minimum balance in the CD balance account. This ensures the endorsements happen hassle-free and your employees get onboarded from Day 1 of the policy purchase. Once the employees get onboarded they can download their health ID card and avail the group health insurance policy.

Why is a CD account used in group health insurance?

Let us answer why is a CD account used in group health insurance, even though the Insurance Act requires upfront premium payment.

While the Insurance Act of 1938 emphasizes collecting premiums before risk coverage, CD accounts in group health insurance address practical challenges and indirectly support the Act's goals.

The Act focuses on no-risk uncovered, clause 64VB ensures the insurer receives premiums before assuming risk. However, group health insurance has a lag, time exists between an employee joining and their information reaching the insurer, creating a potential coverage gap.

CD accounts bridge this gap by having a buffer of funds, the employer can ensure immediate coverage for new employees, fulfilling the spirit of the Act by minimizing uncovered risk. Ultimately, it benefits employees as they receive coverage from day one, aligning with the Act's focus on protecting policyholders.

Therefore, the CD account acts as a practical solution within the legal framework established by the Insurance Act, ensuring both compliance and immediate coverage for employees.

What are the implications of a lower cash deposit balance in health insurance?

When you don’t have enough CD balance or low balance, endorsements will not take place. According to section 64VB of the Insurance Act of 1938, No risk is to be assumed unless a premium is received in advance.—

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.

This means insurance doesn’t get triggered until the insurer receives the premium. This ultimately brings us back to the point that, you need have a sufficient CD balance to ensure your employees have a seamless experience with their group health insurance.

‍Tips for managing CD balance effectively:

• Always keep 10–30% of the total premium as a buffer in the CD account.
• Set reminders to top up the CD account before balance runs low.
• Track endorsements (additions/removals) monthly to forecast CD usage.
• Use tech dashboards like Pazcare to calculate pro-rata premiums automatically.

Pazcare - Insurance on Autopilot

Pazcare ensures HRs don’t struggle with managing insurance for their team. We make it easy for you by providing a tech-driven dashboard to manage employee insurance that lets you process endorsements, download reports, send emails to employees, etc. Employees can use the Pazcare mobile app to access and avail of their employee benefits. This will reduce the dependency employees have on HRs and admin.