You and your friend decide to buy health insurance together. You both do the basic research, go through some insurance portals/aggregator websites, and apply for the same sum insured with the same insurer. While the initial quote for both of you was the same, you are surprised to find out that the insurer has increased the risk premium for coverage of your friend’s health while you get your health insurance policy at the initial quote itself. 

Although this is a hypothetical situation, such instances are often possible in insurance. After you apply for a policy, your proposal is underwritten by the insurer based on your medical history, lifestyle habits, occupation, etc. After underwriting is completed, the risk you present to the insurer will be categorised as standard risk, substandard risk, etc. and the final premium will be offered to you. An increase in premium as a result of underwriting is called loading in the insurance parlance. 

In the above example, your friend could have an adverse medical condition like diabetes, or hypertension, or an adverse lifestyle habit like smoking, drinking alcohol, etc. Such conditions or habits lead to loading on premium. 

To know more about loading on health insurance premiums, read on.

What Does ‘Loading’ Mean? 

The additional amount or the extra premiums charged by the insurer to cover substandard lives is known as loading. Whether or not you are high-risk is decided based on your medical reports, health, lifestyle habits, etc.

Why Do Insurers Apply Loading On Premiums?

Insurers provide you financial protection against a probable adverse event in future like early death, accident, hospitalisation, etc. In lieu of the insurance cover, they charge you an annual premium. Thus, it is only natural for insurers to charge an annual premium in line with the risk/probability of occurrence of the adverse event.

If you are a higher risk for them to cover, that is, if you suffer from an existing illness, smoke daily, work in a risky profession, etc. - they will apply a loading on your health insurance policy premium. Because all these factors increase the possibility of you getting hospitalised and applying for a claim.

What Are The Factors That Affect Loading?

While the terms and conditions for applying loading on premiums might differ from insurer to insurer, here are three common factors that might affect the loading on your health insurance premiums.

1️⃣ Your Health Status

If you have an adverse medical history i.e. you suffer from medical conditions such as obesity, diabetes, hypertension, asthma, cholesterol, etc. the insurer might apply a loading on your health insurance premiums. This is Bbecause you carry a higher risk compared to those who don’t suffer or have a medical history of any illnesses or diseases.

2️⃣ Your Lifestyle 

Your daily lifestyle habits also affect the premiums of health insurance. If you smoke or consume alcohol more often, you might be a higher risk for the insurer to cover. Because smoking, consumption of alcohol, etc. lead to cancer, lung disease, heart disease, and other ailments - all of which increase the risk of hospitalisation/regular treatment and also early death. This further increases the possibility of you applying for a claim as well. Hence, the insurer might apply a loading on your premiums. 

3️⃣ Your Occupation

Loading is also charged based on your occupation. Your insurance premiums will be low if your profession carries a lower risk, for instance, if you are a lawyer, accountant, or a teacher. However, if your job is too risky for the insurer to cover - if you work in an underground mine or are a professional racer, or you are frequently engaged in mountaineering, skiing, river rafting, and other adventure activities, they might apply a loading. 

As mentioned earlier, the T&Cs for applying loading on premiums may vary across insurance companies. So, besides the factors we’ve mentioned above, there may be other factors that may affect loading. 

Important!

Your age, when combined with other health conditions, can have an impact on loading. For instance, Aakash is 28 and his mother is 65. Both Aakash and his mother have diabetes. Aakash is looking to buy separate health insurance plans for both himself and his mother. Since Aakash has diabetes at a young age, the insurance company will apply a higher loading on his policy. Because from an insurer's perspective, Aakash is a higher risk to cover. Aakash’s mother’s condition will be considered an age-related illness - and hence, the loading applied will be lower than that of Aakash. 

How Do Insurance Companies Apply Loading?

Here’s how loading is generally applied - 

• When purchasing a health insurance policy, you need to choose the sum insured based on your needs, and fill out a proposal form, where you are required to enter all your personal and medical details, pre-existing illnesses (if any).
• You will then be taken to the payment page where you will have to make the payment. After the transaction is complete, you will get a confirmation email from your insurance company with the details of the policy you purchased. 
• Next, the insurer will thoroughly evaluate your application. They may apply loading if you have any pre-existing illness or lifestyle habits, like smoking, alcohol consumption, etc. mentioned in the proposal form.
• Loading can be applied by - 
  • Reducing the sum insured for the same premium that you paid, or
  • Charging an extra premium.
• This is known as a counter offer, and it will be emailed to you by the insurance company. You can either accept or reject this offer. 
  • If you accept, you will have to sign and send it back to the insurer, who will then make changes to the policy accordingly and send it to you.
  • If you reject, the policy will be deemed null and void. The premium you paid earlier will be returned to you as per the insurance company’s terms and conditions.

That is all from our side today. Hope this article helped you gain enough clarity on why health insurers charge different premiums from different individuals. If you have any further questions, you can post them on the Beshak Insurance Forum, and get answers from insurance experts within 6-8 hours!