Ever wondered how Insurers cost their Persona Health Insurance Products? While many statistics and related sciences are used.
What’s on this page?
Let us Understand Some Factors Behind Deciding Premiums.
Age is an important factor in deciding the health insurance premium. All insurance corporations base their top rate calculations on the age of the eldest member within the coverage insurance. As a blind rule, the health insurance pinnacle class will increase with an increase in the age of the applicant. This is due to the established data, which proves that older people have a higher incidence of hospitalization. So, buying health insurance premiums at a young age is advisable to reduce the health insurance premium payable.
The different factor finding out the medical health insurance top class is the sum insured. The sum insured is the most liability of the coverage agency throughout the duration. A medical insurance top rate is directly related to the sum insured required. The higher the sum insured, the better would be the medical insurance premium. A particular sum insured is available for a Customer throughout the year. If a customer has taken a health insurance plan for Rs.5 Lakhs and made a claim of Rs.3 Lakhs, then the remaining sum insured of Rs.2 Lakhs only would be available with the insured for the remaining policy period. However, insurers now also have something known as restoration benefits. The restore benefit reinstates the sum insured to the original limit.
The applicant’s health condition plays an important role in deciding the health insurance premium. An applicant with pre-existing diseases might end up paying a higher premium as the chance of hospitalization is high. Health insurance costs would be lower for applicants without any prior health conditions, which could impact the insurance company’s future claims ratio. Cold, fever etc., are not considered health conditions for premium calculation as they are common diseases. Heart stroke, cancer etc., are considered serious health conditions for health insurance premium calculations. A young person with severe health conditions may end up paying a higher health insurance premium than a middle-aged person with a normal health condition.
Lifestyle/Drinking & Smoking Habits:
Lifestyle is important in health insurance premium calculations. Our lifestyles have transformed dramatically with the advent of technology. We are now working sedentary jobs but demand long hours. These long hours exhaust us, leaving us with little time or energy for any physical activity. Disposable incomes have increased and people have started consuming more. Large-scale urbanization has also removed the taboo associated with drinking and smoking. But drinking and smoking affect your health. Health insurance policies ask for the drinking and smoking habits of the applicants. Premiums are generally different for people who smoke and drink frequently compared to those who do it occasionally. Smoking and drinking can cause various health issues such as obesity, cancer, heart stroke etc. Keeping this in mind, insurance companies reward insured with a reduction in premiums if they lead an active lifestyle.
Family Health Condition:
The health condition of family members also affects the premium payable. Few diseases, such as genetic disorders, brain, nerve diseases, and some types of cancers, are transferred to the next generation by heredity. Due to this, the health insurance premium depends on the family’s health conditions.
The applicant’s occupation also decides the health insurance costs, as insurance companies are wary of certain occupations that lead to frequent hospitalization. For example, a person working in mines or the army has a higher chance of hospitalization than someone working in an office. This has led the insurance companies to ask for the applicant’s occupation before providing personal health insurance. Certain hazardous occupations such as stunt masters, working in mines and oil factories attract a higher premium due to the nature of the job.
Zone of Residence/Geographical Location:
The zone of residence also decides the health insurance premium. For premium calculation, insurance companies usually divide the country into 3 zones. All the tier 1 cities come under Zone 1, tier 2 cities under Zone 2 and the rest of the country under Zone 3. The premium for different zones differs as the chance of claim incidence is different in different zones. The cost of treatment also varies for zones, thereby affecting premiums. The cost of treatment in Tier 1 towns is higher compared to Tier 2 & 3 cities which is the motive for higher premiums in tier 1 cities. People taking health insurance policies from Zone 3 but availing treatment in Zone 1 have to pay a certain claim amount during claim settlement due to the co-payment factor applicable in such cases.
Type & Duration of Health Insurance Plan:
The type of health insurance plan and the duration of the plan also decides the health insurance premium. There are many types of plans such as individual plans, disease-specific plans, and family floater plans with different premiums and coverages. The duration of the health insurance plan also decides the premium amount, as insurance companies provide discounts for high-duration health insurance plans. The discounts provided for high-duration plans reduce the overall premium payable by the insured customer.
Loss Ratio of the Insurance Company:
Claims loss ratio is the ratio of the amount of claims paid to the total premium collected. Higher the claims settled, higher would be the claims loss ratio. If the claims ratio is 90%, the company has paid 90% of the premium collected as claim amount and the balance amount is accounted for as administrative expenses. A loss ratio of 100 and above means the company is not making any profits and paying more than it collects. If an insurance company is experiencing a high claims-loss ratio continuously for a couple of years, it can increase the health insurance premium to cover the losses. There could be other reasons for losses such as bad underwriting decisions, pandemics etc., which could increase the claims loss ratio. Such reasons can contribute to the increase in premiums for the health insurance plans at the time of renewal.
BMI index is the body mass index used to understand a person’s health. Insurance companies ask for the BMI index in the proposal form when issuing the policy. Higher or lower BMI index could indicate that the applicant is suffering from obesity or is underweight, which can lead to future health complications. A normal BMI of 18.5 to 24.9 is considered ideal for assessing the applicant’s health condition. Higher BMI normally attracts higher premiums in health insurance plans.
The waiting period is when the insurance company would not pay the health insurance claims. There are ordinary waiting intervals inside the health insurance plans such as pre-existing waiting periods, precise disorder waiting for durations, preliminary waiting intervals etc., which ought to be satisfied earlier than the claim is paid. The concept of introducing waiting periods in health insurance is to prevent people from taking undue advantage of insurance. One of the basic principles of insurance states that its purpose is to cover unforeseen events, not pre-planned ones.
However, insurance companies allow exemptions to these waiting periods to a certain extent by paying an additional premium. It is however, important to note that the waiting periods cannot be removed entirely under any health insurance plans in line with IRDAI guidelines.
Co-pay & Sub-limits:
Co-payment is the share of the claim amount that needs to be borne with the aid of the insured at the time of claim settlement. Sub-limits are limits to the claim amount under particular cases like maternity, cataract etc. Co-payment and sub-limits reduce the health insurance sum insured to a certain extent. Co-payment & Sub-limits shift a portion of liability from the insurer to the insured and reward the customer with reduced premiums. Higher the co-payment, the higher the discounts under the health insurance plan.
All those elements impact the value of personal health insurance plans in India. It is therefore important to give accurate information when filling out the proposal form so that health insurance claims would be allowed in future. Pre-existing diseases should be declared in the proposal form to the applicant’s best knowledge. Trying to hide the material information for the sole purpose of availing health insurance policy accounts to fraud can lead to the cancellation of the policy.