Major Factors That Determine Health Insurance Premium

Health insurance plans were always considered to be the first step towards securing one’s future. Over the past few months, the significance of having a health insurance plan or a mediclaim policy has increased many folds. With the corona-scare all around us, most of us have started to invest in health insurance plans. Often, there is an instinct to select the plan with the lowest premium. Although an insurance plan with a cheaper premium may look very attractive, it may turn out to be an expensive choice in the end. This is because cheaper plans may not provide you with the coverage that you might need for yourself and your family. Hence, you need to choose according to your needs. Premium is important, but should not be the only deciding factor!

What Factors Decide the Health Insurance Premium? 

All health insurance companies have certain guidelines on the basis of which the cost of the health plan or the premium amount is determined. 

Given below are 5 major factors and guidelines that play a key role in finalising the amount you need to pay for your health plan:

1. Your Age
   The age at which you buy health insurance is the key factor in deciding the premium rate. The elderly are more prone to health-related problems as compared to the young and so mostly, the rule of thumb- “higher age means higher premium” is followed. As you grow in age, so will the premium.
   
   For example, let's say, you buy a health plan with a sum assured of INR 10 lakhs, at the age of 25 with an annual premium of INR 10,663. If you buy the same plan at the age of 45, it would cost you around INR 14,095 per year. When investing in a health plan, remember - the earlier the better.
    
2. Your Medical History
   Your health condition also plays a role in deciding how much you need to pay from your pocket for the health plan. Someone with a pre-existing health issue may have to pay more than someone who doesn't. 
    
3. The Kind of Work You Do
   As a policyholder, your occupation is a decisive factor in fixing your premium. 
   
   For example, for a similar health plan, a school teacher or a bank manager will have to pay less premium as their occupation is not risky. 
   
   However, a stuntman or a person who works in a mine has a high occupational hazard. Hence his premium would be high as he works in a dangerous environment. Hence he would be more prone to injuries and hospitalisation. The higher the level of risk involved in your profession, the higher the premium.
    
4. Your Lifestyle Habits
   Certain lifestyle habits increase the risk of diseases. Smokers, for example, are considered to be ‘high-risk buyers’ and have to shed more money from their pocket as compared to a person who does not indulge in this unhealthy habit.
    
5. Coverage Benefits that come with the Plan
   It must also be remembered, that a health plan that offers a better and more comprehensive cover will obviously cost a little more. Going for a lower premium or cheaper plan may actually prove expensive later on as hospitalisation comes with a lot of overhead expenditures. Cheaper plans do not cover loads of additional fringe benefits that add up to the overhead expenses of hospitalisation!
    
6. Top-ups and Add-Ons add value to your Health Plan
   The options of “top-ups” and “add-ons” are benefits that you can buy over and above your base policy. They help take care of various overhead expenses that you may incur during your stay at the hospital. For example, your basic mediclaim policy may not include childbirth, which can cost around INR 50,000. By adding a little extra to your basic premium you can easily get a cover for the same, helping you save much more in the long run. 

What Other Factors Apart from Lower Premium Should I Keep in Mind When I Choose a Health Insurance Plan?

Cheap health insurance plans are though appealing, may offer very little benefits, so it becomes imperative to weigh the pros and cons of every plan. The following key points would help you in making the right choice and selecting the best health insurance policy:

1. A tailor-made plan
   No two people would have the exact same medical needs, therefore, an ideal health plan would be tailor-made as per your requirements. Whether you need an ‘indemnity plan’ that reimburses the expenses at the hospital or a ‘defined-benefit plan’ that would provide you with a lump sum amount as per the policy regardless of the expenses actually incurred.
    
2. Covers Pre-existing illnesses
   In case you are suffering from pre-existing conditions or illnesses at the time of buying a health plan, there will generally be a waiting period of 2-4 years. You may want to seek a plan that comes with a shorter waiting time, as the company wouldn’t cover any expenses for the treatment of any pre-existing illnesses during the waiting period.
    
3. Affordable Coverage Before and After Hospitalisation
   Many health plans cover 30-days as pre-hospitalisation and 60-days as post-hospitalisation, though it is not fixed. Choose the pre-hospitalisation as well as post-hospitalisation days wisely. 
    
4. Additional Benefits
   Some health plans offer additional benefits which might seem expensive at the outset, but proves to be cost-efficient!
   1. Sub Limits
      Health plans which do not have a sub-limit on hospitalisation expenses have no monetary cap or limit on any particular expense. 
      
      If your health plan has a sub-limit of room rent of say 1% of the sum insured. So, for an INR 5 lakhs plan, you can opt for a room category of only up to INR 5,000. Otherwise, there would be a proportionate deduction in the claim.
      
      But plans without a sub-limit have no such limitation. You can health insurance claim upto INR 5 lakhs, irrespective of the category wise pricing! 
      
      Tip:
      Thus, plans with no sub-limits tend to be more expensive than others, but it is worth taking!
       
   2. Co-payment
      Some health plans might require you to share a portion of each and every claim. This is called co-payment, which could be 10-50%.
      
      So, if you have a health plan of INR 5 lakhs with a 20% co-pay, then even if your claim is only INR 50,000, you would be required to pay 20% of that, i.e. INR 10,000 from your pockets. The remaining INR 40,000 would be payable by the insurer. This is despite the fact that the total claim amount is way lesser than the total sum insured! 
      
      Co-payment is usually applicable to senior citizens, people with pre-existing ailments or to reduce the premium burden.
      
      Tip:
      Even though plans with co-pay may be cheaper, it is best avoided!
       
5. Hidden  Benefits 
   A good health insurance policy comes with numerous benefits, that may be unheard of in a comparatively cheaper policy. Many medical insurance plans offer a bonus when no claims are made during a year, the percentage can vary from 10% to 50%. Features like domiciliary treatments, daily cash allowance, free-health check-ups, alternative treatments are benefits that you can derive from a more comprehensive plan.  
    
6. The Network of Hospitals
   The panel of hospitals and healthcare centres where you would not have to pay is called network hospitals. You may want to explore the options available and select a network that suits you.
    
7. Premium
   Yes, the premium that you pay is an important consideration, but it is not the only important factor. A reduced premium would also reduce the number of benefits that you receive. Certain diseases may not be covered under the plan you choose. But at the same time, the premium must be payable. It is a bad decision to stop the premium payment, as the policy will then lapse and you wouldn’t be able to make any claims.

Selecting health insurance is an important decision not just for yourself but also for your family. And because of the pandemic, it has become all the more crucial to have the right comprehensive health insurance.  Rather than regretting the choice of a health insurance plan, it is better to think about what would work best for you, not what would be most convenient. This is especially true at a crucial time of your or your family member’s hospitalisation. Rather than cutting corners in the premium, spending a little more could help you get a more comprehensive health plan. So, before you invest in a health insurance plan only because the premium is cheaper, think again and think beyond.