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How is your Health Insurance Premium Calculated?


Insurance premium is the amount of money the insurance company levies the policyholder for the insurance policy. In order words, the premium is the price paid for the policy. Often the policy premium is paid in monthly installments and sometimes, the entire amount is paid in one or two installments on an annual or semi-annual basis.

You may have noticed, while searching for a policy, that different policies quote different premium amounts. Sometimes, the same insurance company may quote a different premium amount for you and someone else who is opting for the same policy. So, what really determines your premium?

At the base of it all, most policy premiums are calculated keeping in mind the marketing/administrative expense, how much the insurance company wants to use for savings and how much it will reinvest, the medical underwriting which takes into account various types of risks (to prevent loss for the company), and so on.

In addition to these, the following factors also affect your insurance policy premium:

  • Type & extent of risk coverage

There are, often, a wide range of options provided by insurance companies when it comes to the type of policy one can opt for. There are policies that cover only treatment costs, and there are ones that cover room rent as well. Therefore, depending on the extent of coverage offered by the policy you choose, the premium will also vary.

  • Policy-related payments

While it is obvious that the total sum insured will directly affect the insurance premium you pay, there are also a few other payments known a deductibles that can affect your premium. If, for example, you are willing to opt for a higher co-pay, then your insurance premium might be lesser.

  • Your personal information

Your age

Your age is considered to be one of the factors affecting your health and, therefore, it is also one of the factors affecting your health insurance premium. The older you get, the more susceptible you are to ailments like diabetes or blood pressure, and your treatment costs would be reasonably higher due to these underlying ailments.

Insurance companies have set “bands” based on different age groups (for example persons from age 26 – 35 years belong to one band and those between 36 – 40 years belong to the next). It is said that the premiums from one band to another can vary between 30-60%.

Your medical history

Your medical history and your personal habits that can affect your health (drinking, smoking etc.) affect the amount you pay as premium for your health insurance.  Even your family’s medical history will be taken into account, as you are at higher risk of acquiring certain diseases if a family member has it already.

Your BMI

The body mass index (BMI) speaks volumes about your current health status. This calculation involving your weight, age and height determines if you carry a healthy weight or if you are underweight/overweight. Those found to be overweight may be at a higher risk of certain diseases (including heart problems). Some insurance companies may even require you to go in for a health checkup before signing you up for a policy.

Community Rating

Where you live can have an impact on your health and, therefore, on your health insurance premium. For example, if there is a factory emitting toxic elements into the air/water in your neighbourhood, you may be prone to a certain sickness due to these factors. Insurance companies, therefore, provide ratings to different localities and this can affect the premium you pay.

Family size (for group policies)

If your policy is for an individual, the policy payments are calculated accordingly and if you opt for a policy that will cover your family, then the number of individuals the policy covers will affect the calculation of the premium.

  • Market Competition

When two or more insurance company agents are trying to get a large policyholder (like a company which wants to provide health insurance to employees) to sign up with, the competition may cause slight variations in the premium amount they quote. As the policyholder is likely to choose a policy with a company offering the lowest premium for the same benefits, this is likely to happen.

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