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How Health Insurance Premium Is Calculated?

Adhil Shetty

A health insurance helps us cope with treatment costs during medical emergencies. But how much of your expense, your Health Insurance can cover is primarily based on the premium you pay. A premium is the amount of money one is needed to pay at definite intervals to keep the plan running. The premium amount is determined by many factors.

Although, each insurance company has some company-specific guidelines for determining the insurance premium for various health insurance policies, there are a few generic guidelines followed by most.

Here are the factors that help in determining the Health Insurance Premium cost.

Age Of The Insurer

The younger you are, the less premium you pay on the health plan, simply because you are less prone to various health risks. But as you grow old, the premium size increases since health risks are assumed to grow with age. Hence, it is advisable to buy a health plan when you are young to secure a bigger cover for less premium.

Your Personal History

Insurance providers always enquire about your current lifestyle while you are buying a plan. If you smoke or drink, you may be asked to cough up a higher premium as you are at a higher risk to suffer illnesses. Besides, you may be asked if you have any current ailment. If you have diabetes or high blood pressure or any chronic illness, the premium will be on the higher side. You may even be asked to undergo a medical check-up depending on your current health condition.

Marketing And Administrative Charges

Various expenses such as brokerage, advertisement, cost of designing health plan, marketing cost, among others are included in the premium and the insured has to bear the charges.

Investment Plan

A major portion of the premiums collected in public sectors by the insurance provider are invested as per guidelines issued by the insurance regulatory body of the country. Health insurance premium calculation depends on returns of these capitalizations. Therefore, premium sizes are determined depending on how the investment fares in a particular public sector.

Medical Underwriting

Generally, insurance providers deal with various types of health plans such as individual policy, group health policy, corporate policy and floater plans. Insurance providers need to strike a balance between the various health plans. Medical underwriting comes into play then. When it comes to approving medical coverage, they take into consideration various factors such as health condition, age, nature of work, and geographical zone of a particular applicant in order to strike a balance and ensure that the insurance providers do not incur losses. Health premium calculation is done on this medical underwriting.

Other Factors

Apart from age and personal history of a particular health plan applicant, various other factors are taken into consideration to calculate the premium. Some such factors are geographical location, political situation of the region, industrial development, trade activities and lifestyle.

People living in the industrial areas might have to cough up higher premium due to possible health hazards. Similarly, people living in urban areas are at risks of various lifestyle diseases such as diabetes and may have to pay higher premium.

In this digital age, you can calculate health plan premiums online and choose the most suitable ones for self and family. There are online tools that provide you the flexibility to opt for add-ons such as critical illnesses or others and club them with your health plan.

(The writer is CEO, is a leading online marketplace in India that helps consumers compare and apply for credit cardpersonal loanhome loancar loan, and insurance.