What Is Premium in Health Insurance? Meaning & Calculation

There is no fixed formula for calculating health insurance premiums, but insurers generally follow a risk-based approach:

Premium = Base health insurance premium × (1 + risk adjustments) − applicable discounts

Risk adjustments play a major role in determining the premium for health insurance. Some of the key factors considered by insurers include:

Age

Age has a direct impact on health insurance premiums. As you grow older, the likelihood of medical conditions increases, which raises the insurer’s risk. As a result, older individuals typically pay a higher premium health plan compared to younger policyholders.

Coverage Type

The type and amount of coverage significantly affect your insurance premium. Higher sum insured amounts attract higher premiums. For instance, a ₹10 lakh policy will have a higher premium than a ₹5 lakh policy.

Similarly, family floater plans, where multiple members are covered under one policy, or plans that include coverage for specific conditions such as pre-existing diseases or critical illnesses, usually come with a higher premium for health insurance.

Health Status

Insurers closely evaluate your medical history and lifestyle habits. If you have pre-existing illnesses or a family history of chronic diseases, you may be classified as a higher-risk applicant, resulting in higher health insurance premiums. Lifestyle factors such as smoking or regular alcohol consumption can also increase the cost of premium health plans.

Add-ons

Add-ons and riders enhance the scope of coverage beyond the base policy. Common add-ons include critical illness cover and reduced waiting periods for pre-existing conditions. Choosing these additional benefits increases the premium of health insurance but offers broader protection.

Whether you purchase health insurance online or offline, insurers offer multiple premium health insurance payment options, such as:

• Direct debit:

Premiums are automatically debited from your bank account or credit card on the due date.

• Internet banking:

Payments can be made via NEFT or other online banking channels.

• UPI payments:

Many popular platforms allow quick premium insurance payments.

• Insurance company website or app:

Premium for health insurance can be paid directly through the insurer’s official portal or mobile application.

• Offline payment methods:

You may visit the insurer’s branch or an authorised bank branch to pay via cash, cheque, or demand draft.

In addition to age, coverage, health status, and add-ons, several other factors influence health premium insurance. These are:

Location

Healthcare costs vary by city. If you live in a metro or Tier 1 city, the premium for health insurance may be higher compared to smaller cities, due to higher treatment expenses.

Pre-existing Diseases

If you are diagnosed with a pre-existing medical condition or have a family history of certain illnesses, insurers may charge higher health insurance premiums to account for increased risk.

Insurance Plan Type

Individual plans usually have lower premium insurance rates than family floater policies. Covering multiple members under one policy increases the insurer’s liability and, therefore, the premium.

Gender

In some cases, men may be charged higher premiums, particularly if they smoke or consume alcohol. However, women in their reproductive years may face higher premiums due to maternity coverage risks.

Body Mass Index

Certain insurers consider BMI while calculating premiums. If your BMI is above 30, you may fall into a high-risk category, resulting in a higher health premium.

No-Claim Bonus

If you have not made any claims during the policy term, insurers may offer discounts at renewal. This reduces your health insurance premiums or increases your total sum insured without paying extra when you renew the policy.

Understanding what is premium in health insurance also means knowing how to manage it effectively. Here are a few ways to reduce premium costs:

• Buy early:

Purchasing health insurance at a younger age helps lock in lower premium health insurance rates.

• Assess your needs:

Choose coverage that aligns with your medical and financial requirements without over-insuring.

• Maintain a healthy lifestyle:

Staying active, avoiding tobacco, and limiting alcohol consumption can help keep health insurance premiums lower.

• Choose higher deductibles:

Opting for a higher deductible reduces the insurer’s liability and can lower your premium in health insurance.