Can a Startup with 3 Employees Offer Group Health Insurance?

Group health insurance is commonly associated with large companies, but even small startups can consider it. This health insurance is provided to a large number of individuals (typically employees) under a single contract.

A major concern for a small company is meeting the insurer's eligibility criteria. Let’s see how a startup of 3 employees can access group cover. Keep reading to know more.

IRDAI Eligibility

The Indian regulations establish a minimum group size for employer-employee policies. According to the Insurance Regulatory and Development Authority (IRDAI), a group policy should have at least 7 lives (people) as insured by the employer.

Please note that the term lives refers to anyone covered, both employees and their eligible dependents. Practically, it would require 7 people to be covered in total. When the staff of a startup consists of 3 individuals on the payroll only, it does not necessarily exceed this limit.

Lives vs. Employees

The difference between lives and employees is important. IRDAI clarifies that a “life” is any covered individual, which could be an employee, an employee’s spouse, children, or even parents. A small company can reach the necessary 7 lives by counting dependents.

An example would be a startup with 3 employees who might add their family members to the policy. Insurers also permit the spouses and children (usually up to some age) to be covered under the group plan.

Thus, when each of the 3 employees has a spouse and one child, there might easily be more than 7 covered lives. This flexibility allowed small firms to comply with the regulatory requirements despite the low number of payroll employees.

Meeting the Requirement in Practice

Suppose a firm has 3 employees. To meet IRDAI requirements, the company may add 4 additional lives (e.g., spouse or parents) to the policy. To buy group health insurance, you require at least 7 lives. You may include parents or spouses of 2 employees to fulfil the minimum requirement.

That is, with dependents covered, even a 3-employee startup can package as many as 7 individuals. According to industry guidelines, the 7-lives rule by IRDAI is not an employee-based requirement but rather a life-based one, and thus may not require 7 staff.

Insurer Flexibility and Alternatives

Insurers establish sensible limits beyond the minimum number. Public insurers often serve larger groups (100+ lives), while private insurers may cover 50+ lives. Other insurers, however, target start-ups and SMEs (Small and Medium-sized Enterprises) with group plans beginning at about 7-10 lives.

These startup-friendly plans are specifically there to address the needs of very small companies and their families. And in case a 3-person startup still finds it impossible to fulfil the minimum through dependents alone, there are other options. One option is for each founder to buy an individual or family health policy rather than a group plan.

A startup with 3 workers can provide group health insurance, but it typically needs to cover additional covered lives to meet IRDAI's threshold. By creatively grouping employees with dependents or choosing a specialised SME plan, small startups can provide group health cover and protect their teams.