Factors Affecting Your Health Insurance Premium & Coverage Explained

With rising inflation and the increasing cost of healthcare and hospitalisation, the need for health insurance has become more critical than ever. The demand for insurance products has significantly grown, especially after the COVID-19 pandemic. Coupled with the escalating costs of surgeries and even basic preventive healthcare, having health insurance is no longer optional, it is a necessity. If you don’t already have insurance, now is the best time to secure coverage for yourself and your loved ones.

In this blog, we will explore one of the most crucial aspects that every individual encounters when deciding to purchase health insurance: the factors that influence the premium you pay. Understanding these factors is essential to making an informed decision that best suits the needs of you and your family.

We will delve into these factors in detail, providing insights to help you navigate the complexities of health insurance premiums and ensure that you choose a plan that aligns with your financial and healthcare goals.

Key Factors Influencing Your Health Insurance Premium

Health insurance monthly premium is the payment you make periodically, usually monthly to ensure you continue receiving the benefits of your health insurance coverage year after year, provided you renew the policy. These premiums are determined by insurance companies based on their evaluation of various factors, including the potential risks associated with providing coverage and the overall cost of insuring an individual.

The amount of the premium isn’t the same for everyone; it varies depending on several factors. These factors include personal characteristics as well as the specific features of the insurance policy, like the type of coverage and add-ons. Broader economic conditions, such as inflation and healthcare costs, also play a significant role. Moreover, each insurance provider follows its own protocols and methodologies to calculate premiums, which means the same individual could receive different premium quotes from different companies.

1) Age

Age is a key factor in determining health insurance premiums, with younger individuals, particularly those in their 20s and 30s, typically paying lower premiums than those aged 45 and above. This is because younger adults are less likely to make claims, reducing the insurer’s risk. However, as individuals age, the likelihood of health issues and claims increases, leading to higher premiums. Some companies even restrict the purchase of basic health insurance beyond a certain age, offering specialised senior citizen plans instead, which often come with higher costs.

2) Gender

Gender also influences health insurance premiums as men and women face different health risks over their lifetimes. Women are sometimes considered higher-risk policyholders due to health concerns like maternity, childbirth, and other gender-specific medical issues, which can lead to more frequent claims. This can result in higher premiums for women compared to men, depending on the insurer and the policy.

3) Location

Location plays a significant role in determining health insurance premiums. Factors such as state-specific regulations, the availability of medical staff, and local healthcare costs contribute to this variation. In India, differences in climate, medical infrastructure, and pollution levels across states further influence premiums. Typically, premiums tend to be higher in Tier 1 cities compared to Tier 2 and Tier 3 cities due to the higher cost of healthcare services. Conversely, regions with limited medical facilities or rural areas may also see higher premiums due to the increased challenges in accessing healthcare services.

4) Health Conditions

Health insurance premiums are also influenced by the buyer’s current health condition. Insurers conduct health assessments to evaluate the overall health of the individual, including any pre-existing conditions or critical illnesses. This evaluation helps insurers gauge the risk of future claims and adjust premiums accordingly.

5) Pre-Existing Diseases

Pre-existing diseases (PEDs) are medical conditions for which an individual has been diagnosed, treated, or consulted within 48 months prior to purchasing a policy. Common examples of PEDs include heart conditions, high blood pressure, and thyroid issues. Policies covering these conditions often come with a longer waiting period of up to 2–3 years before claims can be made. Since individuals with PEDs pose a higher risk to insurers, their premiums are typically higher to account for the increased probability of claims.

6) Family Size

The size of the insured family also affects the premium. For an individual, the cost of health insurance is lower compared to a family floater plan that covers multiple members. The more members included in a family plan, the higher the premium, as the likelihood of claims increases with the number of people insured under the policy.

7) Additional Benefits & Add Ons

Add-ons are additional benefits that you can purchase to enhance your existing health insurance plan. For example, a family floater add-on allows you to include your family members under a single policy. These add-ons, also known as riders, offer optional benefits that come with extra premium costs. While they provide enhanced coverage and flexibility, they also increase the overall premium of your health insurance plans.

8) Policy Type & Coverage

The type of policy and the extent of coverage significantly influence the premium amount. Basic health insurance plans, which offer simple benefits, usually come with lower premiums. In contrast, comprehensive or extensive coverage plans that provide broader protection, such as critical illness insurance, have higher premiums. Critical health insurance policies often cover a wide range of severe illnesses, which makes them more expensive. Additionally, specifics such as coverage levels, copayment requirements, and deductibles directly impact the premium cost, with more extensive benefits leading to higher premiums.

9) Professional Work

The nature of an individual’s profession also affects health insurance premiums. People working in high-risk jobs, such as factories or manufacturing units, generally face higher premiums due to the increased risk of occupational injuries or health issues. It is important to note that many health insurance policies do not cover occupational hazards, which further emphasises the role of profession in determining premiums.

10) Lifestyle Choices & Habits

Lifestyle choices and habits are critical factors in assessing health risks and setting premium amounts. Two common aspects that significantly influence premiums include:

> Smoking: Smoking is widely known to be harmful to health and is linked to severe medical conditions such as lung diseases, cancers, and fertility issues. Smokers face higher health risks, making them more likely to file claims. As a result, insurance companies charge higher premiums for smokers to offset these risks.

> BMI: Body Mass Index (BMI) is a measure used to assess an individual’s fitness level. A high BMI indicates increased weight, which is often associated with health problems such as joint pain, breathlessness, and other chronic conditions. Individuals with a higher BMI are considered higher-risk policyholders, leading to higher premium costs due to the increased likelihood of claims.

12) Sum Insured (SI)

The sum insured refers to the maximum amount your insurance company will cover in case of a medical emergency. Different companies and their plans offer varying sum insured limits. For instance, if your hospitalisation expenses amount to ₹10 lakh but your sum insured is ₹7 lakh, you can only claim up to ₹7 lakh from your insurer, leaving the remaining ₹3 lakh to be paid out of pocket.

Plans with a lower sum insured have lower premium costs, while plans with a higher sum insured come with higher premiums but provide more extensive financial coverage. It is generally recommended to opt for a higher sum insured plan to ensure sufficient coverage during emergencies, reducing the burden of paying out-of-pocket expenses.

By evaluating these lifestyle factors, insurers aim to balance their risk while encouraging healthier habits among policyholders.

Things to Consider

The pandemic served as a wake-up call for many, not only increasing the number of people purchasing health insurance but also highlighting the rising healthcare costs in India. From surgeries to hospitalizations, coupled with inflation, medical expenses have made Indians realize the importance of health insurance. This has led to a growing reliance on health insurance information and  products.

If you are looking to buy a health insurance policy and seeking clarity about its costs, here are some quick facts about premiums:

> Annual Changes: Health insurance premium may change each year or upon renewal, depending on various factors.

> No-Claim Bonus (NCB): Many policies offer a benefit where you pay lower premiums for every claim-free year, rewarding you for not making claims.

> Premium Calculators: Several online tools and estimators are available to give you an approximate idea of your premium based on factors like your health condition.

> Multiple Determinants: Premiums are influenced by several factors, including age, pre-existing conditions, weight, lifestyle habits, and more.

Determining Premium Costs

Insurance companies appoint actuaries to determine risk levels and decide premium prices for individual and group policies. Even with advancements in artificial intelligence and algorithmic tools revolutionizing the pricing and selling of health insurance, human actuaries remain an essential part of the process. These professionals use mathematics, statistics, and financial principles to assess the risk associated with policies by analyzing their economic costs. By studying past experiences and predicting future outcomes, actuaries ensure that companies can offer competitive health insurance premiums while maintaining profitability.

Once premiums are determined, the revenue generated is utilized by companies to meet liabilities arising from the policies they underwrite. Additionally, many companies invest a portion of this revenue in various financial instruments to generate higher returns. These investments help offset the costs of providing insurance coverage, enabling insurers to keep their premium prices competitive in the market.

Unlike life insurance premiums, which are typically fixed for the duration of the policyholder’s life, premiums for health and auto insurance are frequently reviewed and adjusted. Actuaries play a critical role in this process, analyzing data to reassess risks and costs. Premiums may increase at the time of renewal or the end of the policy term due to various factors. For example, claims made in the previous years, rising coverage costs, or an increase in risks associated with a particular type of insurance can lead to higher premiums.

While insurance companies invest in financial markets to enhance returns, they are also required to maintain a certain level of liquidity at all times. This ensures that they can promptly meet claims and other obligations without jeopardizing their financial stability. Balancing investments with liquidity requirements is a strategic task that insurers carefully manage to sustain profitability and competitiveness.

In this dynamic environment, actuaries remain indispensable. Their expertise ensures that insurance companies can offer reasonably priced policies that not only attract customers but also sustain the financial health of the company in a highly competitive market.

To Sum It Up

Health insurance is no longer just an option; it is a necessity in today’s world of rising healthcare costs and unpredictable medical emergencies. The premium you pay is determined by multiple factors, including your age, health conditions, and lifestyle habits. Understanding these aspects not only empowers you to make an informed choice but also ensures that your policy provides adequate coverage when you need it most.

At OneAssure, we understand that navigating the complexities of health insurance can be overwhelming. Our team specialises in simplifying insurance decisions, offering personalised advice, and helping you choose the right plan tailored to your needs. Whether you are looking to secure your family’s health or exploring add-ons and critical illness coverage, we are here to guide you at every step. For more insights on health insurance and tips to make better financial decisions, explore our blog page . Stay informed, stay secure!