Team AckoApr 5, 2021
It may come as a surprise to open your health insurance bill only to find out that the renewal premium has increased. Unfortunately, increasing premium costs are for real, but one cannot ignore the fact that health insurance is a requirement even if it comes at higher costs. Having access to a health insurance policy, especially during medical emergencies, is an important part of every individual as well as family. However, trying to understand the reasons why the premium went up can sometimes be complicated. It can also lead to guesswork if you are not familiar with different terms associated with health insurance. One of them is ‘Loading’. Through this article, you will be able to understand what is ‘Loading’ in the health insurance policy and how it affects your insurance costs.
So, what is loading in insurance? It is an additional cost included in the policy to cover losses which are more than expected by the insurer. This can be due to a ‘High Risk’ customer. For high-risk candidates, insurers price insurance policies with a higher premium. Insurance companies consider an individual high-risk due to a dangerous job, medical history or adverse claim history. Here is an example to understand the process a little better:
Example: Mr X pays his premium of Rs. 15,000 towards his health insurance policy, which covers him and his family in time. However, when he had to pay the premium for the 6th year, the premium increased to Rs. 20,000. There was a substantial increase in the premium cost since he had raised a claim for unforeseen heart surgery. This is referred to as ‘Loading’ in insurance policies.
Loading is closely associated with health insurance policies due to the types of customers they have to cover. This can be due to the customers’ medical history or claim history, or due to age. Health insurance is a necessity to protect your finances, especially during medical emergencies. To address this concern, insurance companies offer health plans for high-risk individuals with slightly higher premiums. The hike in the insurance rate is known as loading in health insurance.
Both health and life insurance can be influenced by loading. Methods of loading in insurance are based on different factors. Life insurance is based on the type of plan that you choose, the term of the policy and most importantly your age. This affects the loading of the premium. In health insurance, loading is considered by the insurance company when the applicant is a habitual smoker, diabetic, obese or has an occupation which may be life-threatening. The insurance rate is higher for such individuals compared to a healthy individual with a better job, who is considered low-risk by insurers. The higher the risk, the higher the premium charged by the insurance company.
The insurance rate is higher for a high-risk individual. Insurance companies consider different factors to determine the premium cost. These various factors affect the premium loading in health insurance policies. The Following are different components responsible for affecting the premium rate of health insurance, especially for high-risk individuals:
Applicants who are suffering from pre-existing conditions or diseases are more prone to raise claims for hospital expenses. This results in higher medical bills and multiple claims. Insurance companies may consider loading to the health insurance premium before offering the policy to you since you are considered a high-risk profile. The percentage of increase differs between insurance companies, types of plans, the term of the policy, etc.
As you age, the possibilities of hospitalisation or the medical expenses towards ailments increase accordingly. The insurance provider will consider loading the premium to your policy since they are exposed to a high-risk policyholder.
Consumption of tobacco or nicotine is considered one of the main factors which affect the rate of loading applied to the premium. Compared to a non-smoker, the premium for a smoker is higher due to the risk involved in covering the person. Insurers consider smoking injurious to health and could lead to lung infections, cancer and other critical illnesses. This, in turn, leads to higher claims which prompt loading to the premium.
Insurance companies factor in the medical state of the policyholder while determining the premium. Here is an example to understand how it affects the premium. In a group of 10 healthy individuals and aged 35 years, the premium for the health insurance will be the same since the insurer considers the mortality the same for all individuals. However, if a person from the group of 10 individuals suffers from illnesses such as diabetes, obesity, high blood pressure, then they have to pay a higher premium compared to the rest of the group members.
Apart from the above-mentioned factors, there are other reasons why health insurance loading is considered by the insurance company. Here are a few of them:
If you are overweight, insurance companies consider such customers are prone to illnesses such as diabetes, hypertension, etc., which can lead to higher claims. This prompts insurers to consider loading in the health insurance premium.
The place you reside determines the health insurance premium rate. For some locations the premium is higher due to the climate, health issues and lack of healthy food options. The possibility of raising claims from these locations for medical care is relatively more. Hence, the insurance company will review the place you live in before calculating the insurance rate through the means of loading premiums.
If your job is considered hazardous to your health, the insurance company may offer a health insurance policy after loading the premium. This is because you are considered a risky customer.
One might wonder if loading in insurance is justified. While loading has its advantages, it also comes with some disadvantages as well. Most insurance providers set the maximum age limit between 65 and 80 years. This is because of the risk factor even as one becomes older. Also, it becomes difficult for insurers to determine the risk factor of this age group, which is essential while determining the premium rate. Some customers suffer from pre-existing diseases or illnesses such as hypertension, diabetes, asthma or habits such as smoking, while insurers will offer health insurance plans with high loading.
The concept of the loading is to provide relief to both the insurer and to the insured. While the insurer reduces the losses arising out of claims from high-risk customers, the insured or the policyholder, gain access to different health insurance plans for themselves and their families.
However, if the insurer considers loading to the insurance rate due to past medical histories such as an operation for hernia or cataract, it is not justified since these are treatable and the risk of any future complication is considerably lower.
Some of the insurance companies have exclusions in their policies. This is not the same as loading. Certain illnesses or pre-existing diseases are excluded in the insurance plan offered by the insurer or certain conditions that the policyholder must adhere to. However, the premium will be the same and there won't be any loading. These are known as exclusions. If your insurance plan does not cover maternity, you cannot raise a claim for maternity benefits under the policy.
Below are some of the common queries about ‘Loading’ in health insurance policies:
1) Do health insurance premiums remain the same every year or increase?
There are several reasons which affect the premium rate. The above-mentioned factors help you understand how they impact the premium rate. However, the renewal premium of health insurance can be affected by claim loading. If you have raised several claims, the insurer will consider you as a risky customer, hence, the insurer will load the premium, thereby increasing the premium rate.
2) Will the insurance company consider loading premiums while renewing the health insurance policy?
The insurance company will consider loading the premium rate only when it considers the policyholder as a risky customer. This can be due to adverse claim history, medical history or due to the age factor.
3) What is the difference between loading and riders in insurance policies?
The loading premium in health insurance is an additional amount that you pay apart from the regular premium. This is due to inclusion of coverage for illnesses such as diabetes, adverse medical conditions, asthma, etc. However, riders are providing additional coverage for critical conditions by paying an extra premium.
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