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How is the premium for health insurance calculated?

How is the premium for health insurance calculated?

While many now understand the importance of a health insurance plan, they still don’t understand how the premium is calculated. They believe that the premium solely depends on the sum insured they choose and their age. They are, however, wrong. Health insurance premiums are affected by a lot of factors, the sum insured and age being two of them. Do you know how the premium for a health insurance plan calculated?

Here are some of the factors on which the premium for a health insurance plan depends –

  • Age

The first factor which affects your health insurance premium is your age. The higher the age the higher is the probability of health risks. The higher the probability of health risks the higher is the premium charged. So, the premium is directly proportional to your age

  • Existing health problems

Pre-existing conditions also affect your health insurance premium. If you are suffering from any ailment like diabetes, heart problems, increased blood pressure etc., chances are that the premium would be increased for the higher health risk which you have.

  • Sum insured

Needless to say that your sum insured has a direct bearing on the premium rate. The higher the coverage level you select the higher is the claim risk which the company is undertaking. The premium is, therefore, increased with respect to the higher sum insured level.

  • Tenure

Health insurance plans, though they are an annual contract, can be taken for a continuous period of two or three years. In that case, you pay the aggregate premium at once. When you do so, the insurance company is assured of your continued coverage for the chosen duration. As such, the company offers you a premium discount. So, if you choose a higher tenure you get a lower annual premium rate.

  • Applicable discounts

There are different types of discounts available in a health insurance policy. As stated above, you get a discount for choosing a longer tenure. Furthermore, discounts are available if you cover two or more family members under the health plan, if you buy the policy online, if there has been no claim in any policy year or if you maintain your health. These discounts lower the premium outgo and affect the premium calculation

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  • Add-on benefits opted

Riders are available in a health insurance plan. They help in increasing the scope of coverage. Each rider comes at an additional cost. So, if you choose add-on riders the premium is increased. Some popular riders available in a health plan include critical illness rider, personal accident rider, hospital daily cash rider, etc.

  • Earlier claims

Making a claim in your health insurance policy also affects the premium rate. If you have a no claim premium discount making a claim nullifies the discount and the premium increases. Moreover, there might be claim-based premium loading in some health insurance plans. This loading increases the premium if a claim is made in the policy.

  • Medical history

Your medical history has an effect on your health insurance premium. If you have a health condition or have been treated for any complication in the past you present a higher health risk to the insurance company. As such the company loads your premiums because of the higher health risk you present.

  • Lifestyle habits

If you smoke or drink regularly your health deteriorates. A deteriorating health makes you more prone to medical complications. That is why your lifestyle habits influence your health insurance premium. Premiums are higher for smokers and heavy drinkers as compared to non-smokers or occasional drinkers.

  • Physical build

Your physical build determines your Body Mass Index (BMI) which is obtained by dividing your body weight with your height. A normal BMI indicates that you are healthy while a low or high BMI indicates a health risk. A high health risk means a higher premium. That is why your height and body weight affect the premium rate. They help the company to calculate your BMI which determines your health risk helps in calculating the premium rate.

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Read more how to save money on health insurance

So the next time you wonder how the premium of your health insurance plan is calculated, remember these points. You would understand how the premium is calculated.

Read more 10 things to keep in mind before buying health insurance

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