How is Premium Decided in Health Insurance?
By Bhaskar Nerurkar, Head – Health Administration Team, Bajaj Allianz General Insurance
Pune, 30th September 2025: Health insurance has become an essential financial tool in today’s world. The Covid-19 pandemic followed by the increase in infections and associated illnesses, has heightened awareness among people about the importance of having a health insurance policy. We understand its significance and know where to purchase it, but how is its cost determined? Essentially, it depends on the health and wellness of the individual. In this article, we will decode and explain how premiums are calculated and provide tips on how you can reduce this cost by maintaining good health.
Let’s discuss some important factors that determine premiums: –
Age of the Insured: This is one of the most critical factors in determining the premium for your health insurance policy. Younger individuals typically have lower premiums because they are less likely to get sick as their health at younger age is better compared to aged individuals. As people age, their likelihood of getting sick increases, and they may develop lifestyle diseases such as diabetes, high blood pressure, and high cholesterol. Consequently, older individuals incur higher premiums. Hence, it is recommended that health insurance is started at an early age.
Sum Insured and Coverage: Another essential factor to consider is the sum insured you seek for your policy. The sum insured is the amount of coverage you wish to have. Choosing a sufficient sum insured to meet your expenses is recommended in case you get hospitalized.
Additionally, consider the coverage offered by the policy, which includes the medical treatments, services, and facilities provided. These might include advanced medical surgeries, room rents, consumables, wellness benefits, and maternity coverage. It is essential that the coverage you need aligns with a sufficient sum insured, as advanced medical treatments can be costly. As the comprehensiveness of the coverage increases, the premium may also increase.
Period of Insurance: Typically, health insurance policies are one-year contracts between the insured and the insurance company. However, opting for extended periods, such as 3 or 5 years, is possible. It is recommended to purchase insurance coverage for these extended periods, as insurance companies often provide discounts for longer term commitments.
Pre-Existing or Lifestyle Diseases: Individuals with pre-existing conditions such as diabetes, high cholesterol, or high blood pressure may face slightly higher premiums compared to those with normal health conditions. If your family history indicates a hereditary predisposition to a pre-existing disease, taking health insurance at an early age is important. This approach benefits you by securing the policy while you are healthy, and if you contract any illness in the future, the “waiting period” condition under the policy would have been completed. Additionally, specific health insurance policies are designed for individuals with pre-existing conditions.
Individual or Family Floater: An individual policy covers a single person, whereas a family floater policy covers multiple members under one policy. In a family floater policy, the sum insured is shared among all the family members, meaning that any or all family members can avail of medical treatment up to the limit of the sum insured. Consequently, the premium for a family floater policy tends to be higher. However, these policies can be cost-effective overall, as they provide comprehensive coverage for the entire family under a single sum insured, which can be beneficial in managing the financial risks of healthcare for multiple members.
Geographical Area: The residential location of the insured is also an important factor, as medical facilities and costs vary across regions. Metro and cosmopolitan locations like Mumbai, Delhi, and Bangalore have higher medical costs than smaller cities, places and towns. Correspondingly, the cost of premiums can also vary.
Now, let’s discuss what we can do to reduce the premium.
Maintaining a Healthy Lifestyle: It’s very important to maintain a healthy lifestyle. Engaging in physical activities like running, playing a sport, or going to the gym, combined with a well-balanced diet, is essential. These activities make you feel good and help you lead a proactive and vibrant life. Moreover, if you provide a declaration that you maintain a healthy lifestyle, you may be eligible for a discount on your health insurance premium. This encourages individuals to prioritize their health and benefit from lower insurance costs.
Co-payment: Co-payment means that the insured agrees to contribute a fixed percentage of each medical claim amount. This percentage can range from 10% to 50%. For example, if someone gets hospitalized and the medical bill is INR 50,000 with a 10% co-pay option chosen by the insured, the insured will pay INR 5,000 as their share of the expense. This arrangement can significantly reduce your premium cost, as sharing the financial responsibility lowers the insurer’s risk.
Claim History: If you maintain a healthy lifestyle and do not get hospitalized throughout the policy period, you get eligible for a cumulative bonus. This bonus can lead to an enhanced sum insured with little or no increase in premium, along with other benefits.
Understanding how health insurance premiums are determined is crucial for making informed decisions about your coverage. This knowledge empowers you to better comprehend the premiums you are paying and the factors influencing them. It is also essential to choose a reputable insurance company for your health insurance needs. Companies with high claim settlement ratios, excellent service and a strong financial position should be preferred when purchasing a health insurance policy. By staying informed and proactive, you can secure a policy that best meets your needs while optimizing your financial health and ensuring peace of mind.
