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Don't Know How Health Insurance Premium is Determined? This Post is for you!

Published On Apr 10, 2019, Updated On Nov 25, 2020

Health insurance is a boon for every individual who wants to remain financially stable and free from stress during an unfortunate medical emergency. Popular for offering one with the facility of cashless treatment or expense reimbursement, in case they fall ill, health insurance is the ultimate support people need when facing adverse times. The benefits of health insurance are unmatched, however, they come with a cost.

In order to get themselves financially secure and worry-free by the means of health insurance, one has to pay premiums. Those new to the concept of health insurance, you must be unaware of the insurance premium as well.

Having said that, note that health insurance premium is the amount of money the health insurance companies charge for the insurance policy to be purchased. Basically, the health insurance premium is the cost of the insurance that is paid on a monthly basis. In other words, we can say that premium is the payment that one makes to their health insurance company so that the latter keeps the coverage completely active. Moreover, it is important for you to know that premium payments come with a due date as well as a grace period. In case, an insured individual fails to pay the premium by the end of the grace period, the health insurance company suspends or cancels their coverage.

Now that you are aware of the basics of health insurance premium, learn that since health insurance policies are complex and come with hidden terms and conditions, it would be best for you to learn how much premium you will have to pay for a health insurance policy you find the ideal for you.

To find out the factors that determine the premium, read along.

Factors That Decide Health Insurance Premium

  • Type of Coverage

​When looking for a health insurance policy, one gets ‘n’ number of options to choose from. Out of multiple aspects to consider, one is the type of coverage, which in turn, plays a significant role in deciding insurance premiums. In simple words, the more coverage you get or the more comprehensive coverage you opt for, the higher your insurance premium may be.

  • Amount of Coverage

​In the case of insurance, one pays more premiums for higher amounts of coverage. However, the insured individual can save on their health insurance premiums. How? Well, by paying less money for the same amount of coverage if they take a policy with a higher deductible. As a matter of fact, one can take higher deductibles and look for insurance policies with options such as longer waiting periods or higher co-payments. 

  • Personal Information of the Insured Policy Applicant

The aspect of personal information comprises multiple elements. Also, it is important for the health insurance companies to know what kind of clients it is attracting or want to attract.

That being said, let’s take a look at the personal information elements that play a significant role in determining the premium paid.

The list comprises:

  • Pre-existing medical conditions: It is important for the applicant or policyholder to provide their health records so that if there are pre-existing medical conditions, they can be out in the open. For those who do have any pre-existing conditions, whether their conditions are allowed or not covered is something that the insurance companies decide. If by any means, the company doesn’t cover the medical condition, then the policyholder has to pay the cost, thereby dealing with the affected and enhanced premium.
  • Family medical history: In case the family of the policyholder has a history of medical ailments like heart diseases, cancer or any other, they can expect their premiums to be higher than others.
  • Body Mass Index or BMI: Policyholders with high BMI have a comparatively higher rate of premium than those with normal BMI.
  • Age: Premium increases with age. While most young individuals have premiums with lower rates, the elderly have to pay high premiums.
  • Gender: There are multiple policies that come with differences in premium rates, based on gender. In other words, many policies have a difference in rates of premium for men and women. According to experts, women are more likely to visit doctors, take prescriptions, and be subject to chronic illnesses.
  • Marital status: If a policyholder is married, they get insurance premiums generally lower in rates.
  • Injurious substances: People with the habit of smoking, chewing tobacco or snuff have a hard time finding policies with a low premium amount as they are most prone to getting life-threatening diseases such as cancer. Generally, insurance companies increase their premium rates or even reject the application of people with habits like such.
  • Profession: People working in jobs with a high risk of injuries or in environments exposed to radiation, chemicals and hazardous substances have no option, but to pay higher premiums as they are prone to risk of cardiovascular diseases.
  • Geographical location: There are many insurance companies that emphasize location to determine premiums. Companies like such think that shared climate, cultural aversion, lack of healthy food, and other elements impact the overall health of a person, and thus, their health. It is important to note that people living in Tier I cities may have higher premium those residing in Tier II or Tier III cities.
  • No insurance yet: Applicants that do not have a prior policy are charged with a higher rate of premium. Why? It is because it is believed that previously uninsured individuals would make trips to doctors every now and then.
  • Competition in the Industry and Market Segment: Deviation of premium rates is one of the moves made by insurance companies that look forward to pursuing a specific target area in the industry. So, yes, your premium can depend on the same as well.

Looking forward to finding the best health insurance premium calculator right away?

Wait! Don’t you want to know what the insurance company does with the amount of the premium? Here’s what you would like to know - A health insurer has the premiums of countless policyholders. It is their responsibility to ensure the saving of that money in liquid assets so that they are able to pay the claims of the few. So, when an insurance company takes the premium, it keeps is aside and lets it grow every year, until there’s no claim.

What profit does the insurance company get? Learn that in case, an insurance company gets more money than what it has to pay in the claim, operational cost, and other expenses, they gain profit.

Now that the process of determining health insurance premium is clear to you, make sure you don't get confused with the same in the future.

Also, Read

Does Gender Affect Health Insurance Premium Rates?

All About Health Insurance Premium on Monthly Installments

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