Health Insurance Quote: How it is Calculated

The best way to secure your family from any risk or loss is to buy insurance. Risk mitigation techniques help to avoid uncontrollable, but highly impactful loss on account of an uncertain event. One such provision to protect against the risk of health is health insurance. It is the aptest solution for mitigation of risk. It safeguards you in times of any medical emergency by covering all the hospitalization expenses like medical fees, surgical expenses, ambulance cost,s and sometimes even dental expenses.

Health insurance is that part of risk management which covers all the risk related to your health. Sometimes tricky and complicated to scout, it is administered by an insurance company. Its implication might be restricted to some limited medical services or might cover you for full or partial payment of costs of specific services. You can buy health insurance for both yourself as well as your family members. The policy cover entirely depends on your risk appetite and sustainability of routine work, but eventually, every kind of risk management tool in this world has a cost hidden within it.

Yes, that’s correct! Risk management always comes with a cost. Managing the risk may become a complicated exercise to establish, identify, assess, reduce and monitor the risk. Similar is the case with any health insurance policy.  

Health insurance policy is simply a risk management technique to cover the financial costs of hospitalization and other incidental expenses in times of medical emergency. 

It is because of these complexities; there is a clause of cost attached to it. Technological progress and the expansion of medical science combined with the changing legal and political policies have made healthcare risk management more complicated over the years. Risk management involves properly followed the key stages viz. 

  • Identify the risk
  • Analyze the risk
  • Evaluate the risk
  • Address the risk
  • Review the risk.

All these involve high administrative costs, a lot of paperwork and commissions to the agents since all this includes elaborate calculations making the job of selling insurance fairly tedious.

Premium: the cost of underwriting your risk

In layman’s language, the premium is simply the amount paid to purchase an insurance policy. Insurance company recovers all its cost that is incurred right from the idea of making the policy to the point of selling it to the policy buyer. Sometimes even after paying monthly premiums, you are required to pay out of pocket expenses if you want to receive extra care and special attention. 

These may include-:

  1. Deductibles 

It is the amount that you have to pay to the insurance company before it starts paying up for you. The liability of the insurance company is an amount exceeding the deductibles. 

Example- deductible is ₹2000, and you have to claim ₹3000, so the Insurance Company is responsible for paying ₹1000. This is done with a view to prevent unnecessary claims or treatment.

  1. Co-payment

There is a co-payment clause in health insurance which states that you might have to pay a fixed amount of medical services like doctor’s fees and the Insurance Company would cover rest. For Example – Co-payment clause is for10%, and your claim amount is ₹20000, then you must have to pay ₹2000, and the company would cover the rest of the amount, i.e. ₹18000.

  1. Co-insurance

It is the percentage of cost that you have to pay for covered care services after you have met your deductibles. Example- same as in case of co-pay but this amount is generally calculated after you have your deductible because this protects the Insurance companies against large claims. It is normally expressed as a percentage of the net claim after co-payment.

The Math behind the cost of Insurance: Premium

Every mathematical or statistical formula has derivation logic to it. Health insurance policy premium is priced depending on some personal information and amount of coverage, and there are some costs hidden in it. The job of designing the policy, determining the cover and calculating the Premium is of an Actuary. But today’s modern world, development in technology has eased the task of computing the premium. There is a tool ‘online premium calculator’ which gives you the estimated premium amount. You have to fill a form with the personal details and a few other specifications.

You are required to fill details as under.

  • Age
  • Policy term
  • Past medical history
  • Family history
  • Health insurance coverage
  • Sum insured
  • Type of insurance
  • Profession (sometimes depending on the desired plan)

According to your requirement, the online premium calculator shows you the estimated premium amount. This amount may not be precise but it would be very close to the reality.

How Different inputs for premium calculation and its correlation with cost

There are some inputs on which premium depend-:

  1. Age- It plays a vital role in calculating Premium. The Premium varies directly to the age, since an increase in age results in more exposure to diseases, thus, increasing the premium amount. That is why it is always better to take insurance at a young age.
  1. Administration and marketing expenditure- insurance policy and Premium is determined and calculated by an actuary under the given project. So, fee to the actuary is a cost. Also, the health insurance company incurs considerable costs in marketing. Health Insurance Company recovers this expenditure in the premium account. An increase in operational expenses increases the cost of the policy and vice versa.
  1. Past medical record- before determining the premium amount, a complete medical checkup is done of yours to ensure that whether you have any disease or any personal habit like smoking, drinking or doing drugs. If you have any medical issue, then your premium will increase because of an increase in health risk. The correlation, therefore, is positive.
  1. Types of plans – Individual health insurance – under this insurance policy, only a single individual, i.e. you are insured, and Premium is paid accordingly. Family floater health insurance – every member of the family is covered in this insurance plan. Though with the increase in the number of members in the family, the premium amount also increases. The percentage increase in the premium amount is lesser than the percentage increase in the number of members of a family. Senior citizens health insurance – old age people are more prone to get affected by a disease, therefore, more probability to claim coverage. Thus, positively correlated to the Premium.
  2. Mortality rate – It is a measure of the number of deaths in a particular region, state or country; normally mortality rates for focused classes of people are used in the calculation. Premium also depends on the mortality rate. The risk of uncertainty increases with a rise in age. The higher the mortality rate of the segment more will be the premium thus positively correlated.
  3. Add-on covers – There are riders and other extra benefits that you aspire to experience in a health insurance policy for better coverage and to safeguard the risks. You can customize your health insurance and opt for superior treatment or protection in case of a medical emergency. Such costs are worth it because of the value attached to it. The Premium amount will increase with an increase in add on covers, thus positively correlated.
An infographic on health insurance premium calculators.

FAQs: How to Calculate Health Insurance

What are the benefits of not claiming any coverage?

If you have a claim-free year, then you get bonus money added to your sum assured or a discount at the time of policy renewal or both. Normally, the no-claims bonus or NCB is offered as an enhancement of the coverage rather than as a premium discount. Also, another benefit of no claim bonus is that it can be transferred to a new insurer or another insurer at the time of renewal. Example – if you are insured for ₹10 lakhs and you claim zero covers, so at the time of renewal, he will get a bonus of 5% this means in the next year your total sum would be ₹10.5 lakhs.

How will health insurance help in safeguarding emergency medical expenses?

You can claim your cover in two ways – Cashless cover or reimbursement. If you opt for a cashless cover, then the insurance company will directly pay your expenses and bills. But in case it is an emergency, and you don’t have time to do medical formalities, so you would pay for your medical expenses and get the sum that you paid reimbursed. But in both cases, the claim cover can’t be more than the sum assured.

Will I be allowed to cover my family under my health insurance?

Yes, but only if you have opted for a family floater plan under your health insurance. In a family floater health insurance, all your family members are beneficiaries and covered by some health plan. Family members can include- you, spouse, children and dependent parents. It may also have parents-in-law, siblings, and other specified members of your family.

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