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Given the medical inflation in India and the rising prevalence of lifestyle diseases, health insurance no longer remains an option but a necessity. Choosing a health insurance policy comes with premiums paid by the policyholder over a defined period, depending on the type of plan.
In this blog, we will discuss health insurance premiums, their calculation, the factors affecting them, and more. Let's get started.
What is a Health Insurance Premium?
Health insurance premium is the amount paid by the policyholder to the insurance company in exchange for the coverage offered under health insurance plans. Depending on the type of plan, the premium has to be paid monthly, annually or biannually.
Health insurance premiums typically vary depending on numerous factors such as the age of the insured, medical history, and geographical location. Insurance companies might also adjust premiums annually based on the changes in healthcare costs or the claim history of the insured.
How to Calculate Insurance Premium?
Here’s the formula for calculating insurance premiums:
Insurance Premium = Base Premium × (1 + Risk Factor Adjustments) + Discounts
Here:
- The base premium is the initial cost based on the type of insurance and coverage.
- Risk Factor Adjustments are the additional costs or reductions based on your specific risk factors (age, health, etc).
- Discounts
Factors Affecting Health Insurance Premium Calculation
Before deciding the health insurance premiums for policyholders, insurers consider several factors. Some of these factors include:
Age
Age is a key factor in determining health insurance premiums. Securing a health insurance policy at a younger age is generally recommended as premiums increase with age. This is primarily due to the increased susceptibility to lifestyle diseases such as hypertension, diabetes, and cancer.
Geographical Location
This is another crucial factor in determining health insurance premiums. Most health insurance companies set the pricing for insurance plans based on the city you reside in. Residents of metro cities like Delhi or Mumbai often face higher premiums compared to those in tier 2 cities.
Sum Insured
Sum Insured is the maximum amount your health insurance covers in case of your medical treatment. Higher sum insured gives you the benefit of more coverage, but also comes with a higher premium.
For example, if your sum insured is 5 lakhs, your policy would cover medical expenses up to that limit. But if it gets increased to 10 lakhs, the premium amount would also increase as the company would take more risk.
Add ons
Add-ons are additional features that you can include in your base policy, such as newborn cover, room rent modification, annual health checkups, etc. While add-ons provide enhanced protection, each one increases the overall premium cost.
Pre-Existing Diseases
If you have an existing health condition, such as high blood pressure or heart disease, before buying health insurance, it’s called a pre-existing disease. Health insurance companies consider this factor while calculating your premium to ensure that the plan provides adequate coverage for your needs.
Note: Depending on your condition, your premium amount would be higher, or there would be a waiting period before some treatments are covered.
Type of Insurance
The type of health insurance you choose also affects the premium amount. For example, individual health insurance plans are more affordable than family floater plans. Also, plans with higher coverage, such as critical illness plans, cost more.
Body Mass Index (BMI)
Your BMI determines whether you’re underweight, healthy, overweight, or obese. A significantly higher or lower BMI signals health risks that might lead to an increase in your premium amount.
Poor Lifestyle Habits
Poor lifestyle choices, such as smoking and alcohol consumption, also play a role in determining your health insurance premium. These habits are linked to a higher risk of chronic diseases, such as cancer and heart problems, which may lead to medical claims. As a result, insurers charge a higher premium to account for this increased health risk.
How to Pay Health Insurance Premiums?
Here are the steps involved in paying health insurance premiums:
- Visit the insurer's website or app
- Log in or register
- Select ‘Pay Premium’ or a similar option
- Enter policy details
- Choose your payment method:
- Enter payment information by filling necessary details such as card number, expiry date, or UPI ID.
- Review the details and confirm your payment
Pro Tip: Many insurers allow you to set up automatic payments to avoid missed due dates.
How to Reduce Your Health Insurance Premium?
Here are four tips to reduce your health insurance premium:
Buy Insurance Early
It is highly recommended to purchase insurance at a younger age to reduce the risk of developing lifestyle and age-related diseases. This way, you receive coverage benefits at an affordable premium.
Choose Only What You Need
Sometimes, policyholders opt for a plan that offers comprehensive features at a higher premium. However, it’s wise to carefully choose a plan that fits your budget and needs. You can always upgrade later if your situation changes.
Maintain a Healthy Lifestyle
Following a proper diet, regular exercise and avoiding tobacco and alcohol consumption go a long way in reducing your insurance premium. Some insurance companies even offer wellness rewards and discounts for staying healthy.
Opt for a Higher Deductible
If you’re comfortable covering small medical expenses out of pocket, you can choose a higher deductible. This would reduce your premium, making your monthly insurance costs more affordable. It’s a smart option for smart individuals who rarely need medical attention, as it offers financial protection for major health events while keeping the premium low.
Bottom Line
Understanding your health insurance premium is a crucial step for maintaining the right coverage and ensuring you’re financially prepared for unforeseen medical expenses. Knowing how to calculate the premium and identify the factors that influence it can help you make more informed decisions about your policy.
