In today’s world, with the rapid and steady rise in medical expenses, it is essential to get a good health insurance policy. However, when applying for insurance, most of us get lost in a world of jargon.
We come across terms like premium and underwriting, but don’t really understand what they mean. In our rush to sign up for a policy, we often end up paying more than what’s necessary.
To avoid these situations, spare some time to learn about how insurance premium costs are determined. In the long run, this will help you save quite a substantial amount of money, without compromising on your policy coverage.
What is Health Insurance?
This is a type of insurance in which you pay a sum of money every month/year to an insurance firm, with the agreement that your medical expenses will be covered if you fall ill or injure yourself within the duration of the policy.
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What is an Insurance Premium?
The amount that you pay on a monthly or annual basis to the insurance firm for a health policy is called the premium. This money serves as income for the insurer. It is also a representation of the liability on the insurance firm to cover costs if and when claims are made by the client against the insurance policy.
How are Premiums Determined?
Insurance premiums are determined by a variety of factors. Statistical and mathematical calculations play a major role in figuring out which policy you are eligible for and how much you have to pay for it.
Here is a look at the 6 major factors that determine insurance premiums.
Young people tend to experience fewer health problems than their older counterparts. So, the number of doctor’s appointments and medical costs are minimised in the case of younger people. Insurance firms realize that low risk mean less expenditure. Keeping this in mind, younger clients usually have to pay lower premiums than older ones.
If you don’t have a health insurance yet, then you should get a plan as soon as possible. Apply for medical insurance online. It’s easy and hassle free.
Remember, the longer you wait to get insured, the more expensive it will get.
Group or Individual Insurance
Group insurance policies are usually taken by companies for their employees. Since the number of people is high, there’s an increased possibility for them to land up in poor health, so a group policy is the easiest way to ensure wide coverage.
Family health insurance is where the plan provides coverage to your entire family, including your spouse and children. With certain plans, you can even include your parents.
Individual policies are health plans that you take out for yourself, in the event that you get injured or fall ill. One of the benefits of individual medical insurance is that it’s usually cheaper than group policies, because the size of the risk pool is much smaller.
You will be surprised to know that your geographical location plays a big part in determining your premium. Insurance firms operate on the belief that people living in the same region will have similar risk profiles.
If you live in an expensive city like Mumbai, you will probably have to pay a much higher premium than someone living in a lower-cost city like Bhubaneswar. Insurance companies also consider factors like the local laws, climate, general lifestyle, and competitors in the area to calculate the premiums.
Believe it or not, insurance companies charge higher premiums from those clients who smoke cigarettes or chew tobacco. They factor in this lifestyle choice because studies show that not just current, but even former tobacco users are at a higher risk of cancer and other health issues. Insurance firms may charge up to 50% higher premiums to past or present users.
When applying for a health insurance, you will most likely be asked about your family’s medical history. If you come from a lineage that has seen common medical ailments, your premium will definitely rise.
For example, if you have a family member with diabetes, insurance companies will most likely categorize you as a high risk candidate. This will put you in the higher premium bracket.
To Cover Costs
The most obvious reason is that insurance firms must cover their costs. Therefore they fix premiums that cover at least the cost of selling and administering policies, and then they ensure that there are adequate funds to cover any claims made by clients.
Now that you know all the major factors, you’re in a better position to determine the best health insurance policy for yourself.
Remember, you can improve your chances of getting a better deal by cleaning up your health and lifestyle. Exercise more, quit smoking if you haven’t already, and eat healthy. This won’t just get you a better insurance policy, it’ll pay off in the long run and you’ll live a much happier life.