Loading in Health Insurance

What is Loading in Health Insurance?

Loading in health insurance refers to an additional charge added to the insurance premium for individuals with higher risk factors, such as pre-existing medical conditions, unhealthy lifestyles, or adverse medical histories. In simple words, loading covers losses that arise from insuring an individual who is prone to a form of risk, especially if the expected expenses for that period are expected to be higher than anticipated. In fact, the loading charges can differ from one person to another, depending upon the age, claim history, medical condition, lifestyle, etc.

For example, Mr. Ravi Yadav purchased a health insurance policya few years ago from a renowned insurance company. He was very satisfied with the policy for about a couple of years as the company readily honoured his claim for the expenses he incurred when he had sudden heart surgery. When his renewal was due, Mr. Yadav was really shocked by the increase in premium. Further to his inquiry, he was informed that the reason behind this sudden increase was 'loading'.

Factors Affecting Loading In Health Insurance

Following are the factors that might affect the amount of loading applied to your health insurance premium:

• Age: The age of the policyholder plays a great role in affecting the health insurance premium. The reason is that as your age increases, the probability of mortality increases and this leads to a significant difference in the premiums charged from different people. For instance: A 25-year old non-smoker pays ₹464 per month to get a sum insured of ₹1 crore, while a 35-year old non-smoker will pays ₹665 per month for the same sum insured.
• Smoking: Smoking or any other form of contact with tobacco or nicotine is another factor that majorly impacts the amount of loading applied to your mediclaim premium. The premiums for smokers can be almost double the premiums charged from non-smokers due to their increased risk of dying younger or falling sick. For example, a 25-year old non-smoker pays ₹5,577 per annum to get a sum of ₹1 crore, while to get the same cover, a 25-year old smoker pays ₹9,270 per annum for the same coverage.
• Medical Condition: Your medical condition is another factor that determines the loading applicable to your health insurance premiums. For example, Sunil is fit and healthy and is 45 years old, whereas Manoj is obese and is of the same age. In this case, the premium payable by both will be different, with Manoj's premium being on the higher side. This is because Manoj's organs are more likely to get damaged.
• Pre-Existing Diseases: People with pre-existing diseases (PEDs) are more likely to need medical care and file claims for hospital expenses. Because of this higher risk, insurance companies may charge extra loading amount on their health insurance premiums. The exact increase depends on factors like the insurance company, the coverage duration, and the policy type.

Additional Factors Affecting Loading in Health Insurance

Beyond the primary considerations, several other factors can influence why health insurance companies apply loading to health insurance premiums. These include:

• Obesity: Being overweight is often associated with an increased risk of conditions such as high blood pressure, diabetes, etc. Due to the likelihood of higher claims, health insurance companies in India may add loading charges to the premium for such individuals.
• Occupation: If your profession exposes you to health hazards or increased health risks, your insurance provider may charge a higher premium.
• Place of Residence: Your residential location can significantly impact your health insurance premium. Certain regions may attract higher premiums due to factors like prevalent health risks, or limited access to nutritious food. These conditions may lead to a higher frequency of claims from such regions, prompting insurers to adjust premiums accordingly through loading.

Difference Between Loading and Exclusions in Health Insurance

Loading and exclusions in health insurance are two common strategies insurers use to manage risk, but they work differently.

'Loading' refers to an additional amount that is added to the base premium to cover 'risky' individual. This ensures that the insurer can cover potential financial losses while still providing coverage to the policyholder. On the other hand, 'exclusions' are specific conditions or treatments that the insurance policy does not cover. Insurers apply exclusions to limit their liability and keep premiums affordable for all policyholders.

The key difference lies in the impact on coverage. With loading, the policyholder gets coverage for their condition but at a higher cost. With exclusions, certain conditions or treatments are denied coverage, even if the policyholder has insurance.

Is Loading Justified?

Loading is justified in some cases, while it might not be in the rest. Let's discuss this in detail.

Some of the mediclaim insurance applicants suffer from major ailments such as diabetes, hypertension or asthma. In fact, some people also have bad habits, such as chewing tobacco and smoking. So, if an insurance company accepts applicants despite having a health ailment, or past medical history, it would certainly offer the policy on special terms with significant loading.

For insurers, loading is a way to mitigate the risk of covering individuals whose claims may exceed what was originally anticipated. On the contrary, for applicants, loading can serve as a way to access coverage that they might otherwise be excluded from due to their health condition.

And, if individuals with high and low health risks are required to pay the same premium, it could be seen as unfair to those with lower risks. In such cases, applying a loading is a way to ensure that premiums align with the actual level of risk each policyholder represents.

However, loading is not justified in instances where it is applied to an individual with a history of surgeries like cataract or hernia. Both are easily treatable and have a negligible risk of further complications.