Sum Insured Options — Flat vs Graded, Family Definition
How the sum insured is set in a group health policy: flat and graded structures, the family definition, what a restoration benefit does, and what decides the date from which a mid-year change takes effect.
What the sum insured is
The sum insured is the most the insurer will pay for covered expenses in a policy year. In a group policy it applies to each member or to each family unit, as the policy defines. Where it applies to a family unit, every covered member of the family draws on the same amount, so a large claim by one member leaves less for the others in that year.
Flat and graded structures
A flat structure gives every employee the same sum insured. A graded structure links it to the employee's grade, designation or salary band, so different levels of staff have different amounts of cover. Which structure is used, and the amounts, are decisions of the employer agreed with the insurer.
A graded structure raises a practical question when an employee is promoted mid-year into a grade with a higher sum insured. That is a change to the contract. Under many group policies it applies from the date of an endorsement issued after the employer informs the insurer, often with extra premium; some policies handle it differently. The master policy wording decides, which is why grade changes need to reach the insurer promptly.
The family definition
The family definition says who is covered besides the employee. There is no single definition for group policies. The master policy agreed between the employer and the insurer sets it: often the employee, spouse and children, with parents or parents-in-law sometimes added. Any age limit for children is stated in the policy.
A wider family definition or a higher sum insured generally means a higher premium, because more people or larger claims are being covered.
Restoration
Some policies carry a restoration benefit, which reinstates the sum insured after it has been used up during the policy year. The conditions vary: whether it applies to the same illness or only to an unrelated one, whether it is triggered by full or partial exhaustion, and how many times in a year it can operate. Each policy sets these, so the wording decides.
Where a member can check
The sum insured and the sub-limits are shown in the Customer Information Sheet given to each member. Who in the family is covered is set out in the master policy, and members can check it in the documents issued to them.
Rules at a glance
A promotion in the middle of the year
Illustration, with assumed terms: an employer's graded policy gives ₹3 lakh to junior grades and ₹5 lakh to managers. Meera is promoted to manager on 1 August. The employer informs the insurer, and the insurer issues an endorsement dated 20 August raising her sum insured. This policy applies the higher amount from the date of the endorsement.
Meera is hospitalised on 10 August. Under this wording her claim is assessed against ₹3 lakh, because the endorsement had not yet been issued. A policy worded differently could give a different answer, so the master policy has to be read.
A family sum insured across three claims
- Assumptions of the example: a sum insured of ₹5,00,000 that applies to the family unit of an employee, spouse and two children; all amounts below are fully admissible. The policy has a restoration benefit that reinstates the full sum insured once in the policy year, after it has been completely used up, for a later unrelated illness only. These terms are made up for the example; each policy sets its own.
- Claim 1, spouse, ₹3,20,000: paid in full. Balance = ₹5,00,000 − ₹3,20,000 = ₹1,80,000.
- Claim 2, child, ₹2,50,000: only ₹1,80,000 remains, so ₹1,80,000 is paid. Shortfall borne by the family = ₹2,50,000 − ₹1,80,000 = ₹70,000. The sum insured is now used up.
- Restoration: under the assumed wording the sum insured is reinstated to ₹5,00,000 for a later unrelated illness. It does not go back to pay the ₹70,000 shortfall on claim 2.
- Claim 3, employee, an unrelated illness, ₹1,00,000: paid in full from the restored amount. Balance = ₹5,00,000 − ₹1,00,000 = ₹4,00,000.
Result. The policy pays ₹3,20,000 + ₹1,80,000 + ₹1,00,000 = ₹6,00,000 in the year, and the family bears ₹70,000. Without the restoration benefit, claim 3 would not have been paid.
Key points
- The sum insured is the most the insurer will pay for covered expenses in a policy year, per member or per family unit as the policy defines.
- A flat structure gives every employee the same sum insured; a graded structure links it to grade, designation or salary band.
- The family definition is set by the master policy; there is no single definition for all group policies.
- A restoration benefit reinstates the sum insured after it has been used up, on conditions set by the policy.
- A mid-year change in sum insured takes effect as the master policy and any endorsement provide.
Common misunderstandings
- A family sum insured is not a separate amount for each member: every covered member draws on the same figure.
- A promotion does not always raise the sum insured from the day of promotion: the master policy and any endorsement decide the date.
- Restoration is not an unlimited refill: its conditions, such as same or unrelated illness and how many times a year, are set by the policy.
Questions people ask
Are parents-in-law covered under a group policy?
Only if the master policy's family definition includes them. Some policies add parents or parents-in-law; many cover the employee, spouse and children.
What this lesson relies on
- IRDAI Master Circular on Health Insurance Business (29 May 2024) — Customer Information Sheet
- The master policy wording of the group product concerned (sum insured structure, family definition, restoration and endorsements)
This lesson was reviewed independently against these sources on 8 October 2026. Rules change: check the current regulation, scheme document or policy wording before relying on any figure. This is education, not advice.