Written By: Pavitra Sampath | Published : August 13, 2013 10:40 AM IST
Ever wondered why the insurance premium you pay is different from that of a friend's? Or why your dad's premium is going up every time he renews it? Well, there are various factors that affect the premium amount. Read the points below to understand the process better:
What is a premium?
It is the amount a person with insurance has to pay on a yearly basis to maintain his/her health insurance policy. This amount increases with time until the point where the policy has to be renewed.
What affects how much you pay as health insurance premium?
Most health insurance premiums are calculated differently for different companies. But there are some broad guidelines that all insurance companies follow, they are: (Read:10 practical tips to choose the right health insurance)
1. Higher the sum assured, higher the premium: The first step for calculating a premium is based on a person's sum assured (is the total amount that one is insured for. It means that, in case of any medical need, a person will be covered for the amount of your sum assured). Since it is a percentage of the sum assured, one will have to pay higher premium for a higher value of sum assured.
2. The greater the BMI, more the premium: BMI (or the Basal metabolic rate) is an indicator of the person's all round health. The more it is, the higher the chances of suffering from lifestyle diseases like diabetes, hypertension, heart disease and other obesity-related ailments. The health insurance companies calculate your BMI before approving your policy. If the levels are either too high or too low, it might lead to more tests to evaluate your health increasing the likelihood of paying a higher premium. (Take ourQuiz: How health conscious are you?)
3. The older you are, greater the amount: Since your chance of contracting diseases goes up with age, the insurance company levies a higher premium which goes up with age. If you have any conditions like diabetes, hypertension etc. the cost further rises. So, it would be wise if you get yourself a health insurance policy when you are young.
4. Higher the investments, higher the premium: Most insurance companies (both life and general insurance companies) invest in public organizations that are stipulated by the Government of India. In the case of insurance companies the IRDA regulates the investments of organizations. A part of the total premium amount is added for this purpose as well.
5. The more often one falls ill, the higher the amount : Here the insurance company uses the medical or health information of a client, to decide whether to accept or deny an insurance claim and to decide the amount of premium that should be set for that person's policy. There are two ways to calculate this amount. One is to use moratorium underwriting, which a fairly simple process where the company excludes any illness a person has not had for the past five years. The policy is only reviewed when one applies for a medical cover. The other type is a full medical underwriting, where a person has to disclose their complete medical history. Then the company evaluates the conditions he/she has and then decides what should be excluded and what can be covered. An amount based on the chances that he/she might suffer from a disease in the next year is added to one's premium amount accordingly. (Read:Ten life-saving health tests you should take)
6. Better the city of residence, greater the premium : Also known as the adjusted or modified community rating, the insurance company decides the risk to one's life and health based on where he/she is living, physical conditions (like pollution or other environmental factors), economic factors, financial stability, political stability, lifestyle etc. to decide the premium that should be charged. For example, if a person lives in Mumbai he/she will be charged a higher premium as compared to someone who lives in a small town, because they will have a higher chance of suffering from illnesses that are due to pollution, or accidents etc.
7. Better the history, lesser the premium: Another tool that most insurance companies use is called Experience rating. This is where the company uses historical data about the area that a person is living in, the number of claims that has been sent in from that region etc. A general prediction is made and the average risk of them requiring medical attention is estimated. A fraction of this amount is then added to the person's premium.
8. Healthier the group, lower the premium: People with the same characteristics, that includes age, sex, number of family members (in the case of a family floater plan), place of residence etc. are grouped together to decide the base amount for the premium. For example, a group with mostly young people between the age of 25-30 are less likely to fall ill when compared to older individuals. An average is taken and the amount is then added to a person's premium amount.
You are aware about how various factors can affect the premiums you pay. Make a conscious choice! (Read:Ten questions you should ask your health insurance company)
Bajaj Allianz Family Floater Health Guard is an all-round health insurance policy that covers you and your family against medical expenses such as hospitalization, doctor's consultation, diagnostic tests, medicines, ambulance, etc. With Bajaj Allianz Health Guard you and your family can afford the best treatment without having to worry about expenses and at a hospital of your choice. Click here for more information about this health insurance plan.
Tired of reading? Check out our YouTube Channel
