How are Group Health Insurance Premiums Calculated?

A group health insurance plan is one of the perks offered by an employer to its employees in an employee’s benefits package. There are several factors associated with the group health insurance premium. In the insurance industry, the premium and risk have a direct relation. Read ahead to know the factors deciding the group health insurance premium.

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  • Employee, spouse & kids

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Factors That Decide the Group Health Insurance Premium Amount 

Below we have discussed a list of the factors that decide the group health insurance premium-

1. Average Age of the Employees 

The average age of the employees being insured under a particular plan is considered in determining the premium amount. This factor depends upon how much risk is involved in insuring a group. It is obvious that the young people group has better immunity, and they are not diagnosed with chronic illnesses as compared to the senior citizens. Therefore, the insurance premium will be comparatively lower. 

Let’s understand this with an example- two IT companies are looking to insure their employees. The average age of employees in company X is 25-30 old, and in company Y the average age is 35-40. Here, the group health insurance company will offer low premium rates to company X because of the age factor. 

2. Nature of Job 

The nature of the job plays a vital role in deciding the insurance premium. Some jobs have a huge risk associated, while some are risk-averse. Therefore, the higher the risk associated with the job, the higher the premium will be. 

For example- A group health insurance company will offer low premium rates to insure the employees of the digital marketing agency because it is a desk job. While the premium for the production company will be more as the nature of the job is a floor job and the risk associated is more. 

3. Type of Coverage 

The scope of coverage under a single plan will decide the premium rate. In a group health insurance policy, the policyholder can widen the coverage by adding their immediate family members to their plans. Generally, there are three types of group insurance plans offered by home insurance companies- 

1. E-plan- for employees only, 

2. ESC-plan- for employee + spouse + up to 4 dependent children, and 

3. ESCP-plan- for employee + spouse + up to 4 dependent children + 2 parents 

Hence, the premium for ESC coverage will be lower than the ESCP plan. 

4. Total Sum Insured

Sum insured means the upper limit amount your group health insurance company can pay in case your employee is hospitalised. The higher the total sum insured, the higher the premium rate charged for it. For an employer, it is advised to choose the correct sum insured and check other related factors like scope of coverage, network hospital, and inclusions of a plan offered by the insurer. 

For example- if there are two plans offered – Plan A (a sum insured up to Rs 3 lakh) and Plan B (a sum insured up to Rs 6 lakh). Here, the premium for Plan B will be higher than the premium for Plan A because the total sum insured amount is more. However, it is advised to the employers to not purchase an group health plan just because it is cost-effective but to purchase an insurance plan that actually serves value to the employee in case of a medical emergency.

5. Add-on Covers 

A standard group insurance policy covers hospitalisation expenses and ICU charges. In case you want to enhance the coverage, you can buy add-on covers available with it by paying an additional premium amount. These add-on covers can be dental care, OPD consultations, or dietitian’s consultation. Moreover, the premium for any add-on cover you choose varies. 

For example- If an employer increases the coverage by adding the OPD consultation cover and dental care in the basic plan, it will increase the premium rate. 

6. Raised Claim History 

When a company is offering a group health insurance policy for the first time, it will not be covered under this factor. But if it is not their first time, the insurer will consider the previously raised claim history by the insured. In case the number of raised claims is high, the premium amount will also be higher. On the contrary, the insurance provider might offer you a discount if the  number of raised claims is low in the past.

For example- Company X has raised fewer claims during the policy period compared to Company Y, whose claim history is not good. In this situation, the insurer might consider increasing the premium amount for Company Y based on its previous claim records. 


An ideal group insurance plan covers the employees and their immediate family members at an affordable premium rate. Moreover, as an employer, you must check the claim-settlement process and customer services of a group health insurance company before buying group insurance from them. 

Written By: PolicyBazaar - Updated: 29 April 2022

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3.8 April 09, 2023
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