Know how health insurance premium gets calculated

Health Insurances 175 views

Much of the focus remains on the coverage ratio, type of cover, claim settlement process and the premium amount while choosing health insurance policy. You must be checking a myriad of health insurance schemes to find the best one for you in terms of coverage and premium payout. The premium amount can differ from one insurer to another on similar schemes. But have you ever bothered to know as to how the premium amount on your health insurance policy is arrived at? I am sure most of you would not have. So, we will discuss the calculation of premium on your health insurance policy. Below are the points on which the premium amount is dependent.

Marketing & Administration Expenses

The marketing and administration expenses incurred on the health insurance policy get passed on to the subscribers in the form of premium. The expenses include the cost incurred for the designing the health insurance policy, marketing costs, broker commission, cost of advertisements and brochures, as well as other operational expenses.

Savings Part

Savings part form the portion of the regular premium and are put across several public investments. Private sector investments are usually not there. Based on the guidelines issued by the Insurance Regulatory and Development Authority of India (IRDAI), the insurance industry watchdog, the investments are made and the premiums are computed depending upon the returns from these capitalisations.

Mortality Rate

Health insurers bear the cost of paying the sum assured to the families of the insured individual in the event of his/her death. The expenses for the same differs across people of varied income and age groups. Premiums get higher as you grow older and if you are affected with diseases such as blood pressure, diabetes or heart problems. Also, be ready to pay more if the sum assured is higher.

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Medical History

Health insurers take various factors into consideration before making you the subscriber of the policy, such as your as well as your family's medical history, habits like smoking and drinking, etc. If the medical history presents a series of ailments with a tendency to smoke and drink, then the premium will be charged more. Depending on the medical history, insurance company fixes the premium amount. In this case, the health insurers calculate premium amount by two processes known as Medical Underwriting and Moratorium Underwriting. As per medical underwriting, y the insurer evaluates your condition by checking the medical history and takes a call on what to include and exclude from the cover. Based on possibilities of you getting affected with a disease, an amount gets added to your premium accordingly. While moratorium underwriting is a process by which the company keeps out any disease or condition, which a person didn't have for the last five years, from the policy. The policy gets reviewed only when you apply for the medical cover.

Other Factors

Medical insurance companies take into account the lifestyle, political environment, geographical location, trade activities and industrial development of the area you stay. Depending upon these factors, a premium amount is decided.