A cash deposit balance account in health insurance is like a bank account in which the insured can park his advance premium amount, which will be utilized in the future to provide health insurance coverage to its employees.
The cash deposit account is usually available in the group health insurance policies where there would be continuous additions and deletions of the insured members.
It would not be practically feasible for the insured to pay the premium every time a new employee joins the organization and at the same time, it would be cumbersome for the insurance company to refund the premium every time an employee leaves the organization and is therefore removed from the group health insurance coverage.
Cash deposit accounts are created by the insurance company to facilitate insurance related transactions for the insured.
These accounts are interest-free accounts as there would be no interest offered for the premium amount parked in these accounts.
The Cash deposit account is specific to the insured customer and only that particular customer can carry out the insurance-related transactions with that account.
What’s on this page?
How does a Cash Deposit account work?
- At the time of purchasing the group health insurance policy, the insured can decide to open the cash deposit account and park 10-20% of the premium amount which is over and above the basic premium amount in this account.
The limit of the amount that can be parked in the cash deposit account could be decided by the insured as the account does not offer any interest on the funds lying in the account. - If any new employee joins the organization and enrolls under the group health insurance plan, the insurance company would add the employee to the group health insurance plan immediately with the date of addition being the date of joining of the employee and utilizing the amount from the cash deposit account.
If the cash deposit account is not present, then the date of coverage for the newly joined employee would be that of the date of receipt of premium funds into the account of the insurance company. - If any existing employee leaves the organization and is to be removed from the group health insurance policy list, then the insurance company would remove the employee and refund the premium on a pro-rata basis to the cash deposit account.
In case of the absence of the cash deposit account, it would take a couple of days for the premium amount to be refunded to the insured.
Advantages of Cash deposit account
Cash Deposit Benefits for employees
A cash deposit account is beneficial to the new employees joining the organization as one intimation by mail would suffice to add the employee from the date of joining even if the intimation is made a few days after the date of joining.
This is because the insured is maintaining the cash deposit account with the insurance company and therefore no complaince issue would arise. As opposed to this, consider the case where premium payment is made with a cheque or any other mode – the coverage in such cases would start from the day of premium receipt and not from the joining date of the employee. This could be a problem if the new employee needs to be hospitalized immediately as his name would not be available in the policy.
Reduces hassle for both parties
Maintaining a cash deposit account reduces the hassle for both parties i.e. insurance company and the customer as the premium would be deducted directly from the account to provide insurance coverage instead of waiting for the payment and the refund would be credited to the cash deposit account.
If any employee leaves the organization, the pro rata premium refund would be made to the cash deposit account. In a big organization with many members in the group health insurance policy, there would be many people leaving and joining the organization in a month.
This way the insurance company need not do the additions and deletions premium processing for each and every case but instead can adjust the premium amount directly from the cash deposit account.
A cash deposit balance account does not have any charges to open or maintain it, and it can be closed once the customer decides not to renew the group health insurance policy with the specific insurance company.
An important point to note however is that a cash deposit balance account cannot be transferred from one insurance company to another.
Frequently Asked Question (FAQs)
- Can I use the funds in my cash deposit balance account for anything other than group health insurance premiums?
Generally Yes. A Cash Deposit (CD) account is maintained in the name of a company and the monies in the CD account can be used for issuance/ endorsement of any other policy as long as it is not with the intent of making a claim on the other policy. The Insurer also needs to agree for such arrangement explicity and beforehand.
- What happens to the money in the cash deposit balance account if we don’t use it all?
If there’s a remaining balance in the cash deposit account when the policy term ends and isn’t renewed, the insurance company will typically refund the remaining amount to the policyholder.
- Is there a limit to how much I can deposit in the cash deposit balance account?
While there might not be a limit on the amount you can deposit in a CD account, keeping excess money in such an account is not advisable since it does not earn any returns.
- Are there any fees associated with a cash deposit balance account?
Generally, there are no fees to open or maintain a cash deposit balance account.
- If I have a cash deposit balance account, does that mean my employees are immediately covered from their start date, regardless of when I notify the insurer?
While a cash deposit balance account facilitates quicker enrollment, it doesn’t automatically guarantee coverage from the employee’s exact start date in all cases. It allows the process of adding the employee to be expedited, often backdating the effective coverage date to their start date if you notify the insurer promptly. However, there might still be a short administrative window. It’s crucial to communicate new hires to your insurer as soon as possible, even with a cash deposit account, to ensure seamless coverage and avoid any potential gaps. The cash deposit account primarily addresses the payment aspect, not necessarily the notification requirement for adding members to the group plan.
