What are the factors affecting the premium of critical illness insurance?

Lifestyle-related diseases such as strokes and kidney failure are on the rise. Critical illness insurance provides financial support for the treatment of these conditions so that you can get the proper treatment. In September 2024, India's Ministry of Health and Family Affairs released the National Health Accounts (NHA) Estimates 2021-2022. According to the report, the Out-of-pocket expenditure of the Total Health Expenditure (THE) stood at 39.4%. The number dropped from 48.8% in 2017-18.

It pays out a lump-sum compensation if you are diagnosed with any one of the critical illnesses covered. It can be used to cover the cost of your treatment or to compensate for lost income.

But the premium for critical illness insurance varies based on some specific factors. Let's find out what impacts critical illness insurance cost and how insurance companies calculate critical illness insurance premiums.

1. Age and Critical Illness Insurance Premium

Age is one of the most important factors that influence the premium rates for critical illness plans. If you buy the policy at a younger age, you pay a lower premium because you are at a lower risk of being diagnosed with a critical illness.

Additionally, you can lock in the premium rate at the age at which you purchased it. So, you pay a lower rate for a set time.

The risk of developing a critical illness increases with age. This raises insurance costs. To account for this higher risk, insurers charge higher premiums for aged applicants. In some cases, insurers may also require medical tests or apply restrictions for older age groups.

2. Sum Insured and Premium Relationship

If you are diagnosed with a covered illness, the insurer will pay a larger lump sum if the sum insured is higher. This increases the risk for the insurer, and your premium increases.

But choosing less coverage to save money on premiums can put you at financial risk. Medical inflation in India is rising at an estimated 12-14% annually, indicating that treatment costs are increasing rapidly each year.

To decide the sum insured, consider -

• Your city's healthcare costs.

• Your lifestyle.

• Treatment specifics such as private hospitals, advanced procedures, or recovery support.

Pro Tip - The experts at AssetPlus can help you weigh different lifestyle factors affecting critical illness insurance premiums to help you find the correct sum insured.

3. Pre-Existing Conditions And Insurance Premium

Pre-existing conditions can raise your premiums even if the insurance does not cover these ailments. This is because the policyholder is more likely to have additional issues related to the conditions.

Ratheesh Nair, Founder and CEO, Watch Your Health. If you have existing health conditions such as diabetes, BP, or any chronic illness, insurers consider you a higher risk. This leads to a higher premium, known as 'loading,' or coverage with specific exclusions.

Be transparent about your medical history. Failing to disclose past or ongoing conditions can result in claim rejection.

Additionally, most insurance policies cover pre-existing conditions after a waiting period. Therefore, you'll need to wait a specified period after policy issuance to claim for that illness.

If the health risk is too high, the insurer may reject your application or recommend a limited plan with fewer benefits.

To avoid claim rejections, always disclose your complete medical history.

Pro Tip - Keep a health checklist when choosing an insurance policy to ensure you disclose your complete health history.

4. Family Medical History

Family history also plays a role in risk evaluation. If close relatives have a history of serious diseases, you are categorized by insurers as being at high genetic risk. Although you may not have an immediate health issue, hereditary factors can still impact your premium.

It signals that you are at higher risk of developing similar conditions later on. Though weighed differently by each insurer, it is a key component of risk assessment and premium calculation.

5. Number and Type of Illnesses Covered

Basic plans usually include 10 to 15 major conditions. More comprehensive policies cover anywhere from 30 to 50 illnesses.

More coverage increases the risk for the insurer. This results in an increased premium. Though they are more expensive, plans that cover early-stage illnesses or provide staggered payouts based on the illness severity offer better financial support.

Don't just look at the number of illnesses listed when selecting a policy. To determine how each illness is defined, whether the early stages are covered, and what causes a payout, carefully read the policy document.

Pro Tip - Connect with an Insurance expert to get details on the disease coverage and premiums to weigh options.

6. Policy Tenure and Renewal Terms

Short-term plans, typically lasting one to five years, are affordable initially. But they can become costly over time due to frequent renewals and rising age-based premiums. Whereas, long-term policies have higher premiums but offer better value.

Look for policies with lifetime renewability. It maintains coverage as you age. It increases the premium slightly but offers protection when health risks are higher.

Some insurers offer fixed premiums throughout the policy term. Others adjust the cost as you age.  Choose a plan with a stable premium to avoid unexpected price hikes later.

Confirm whether the insurer requires fresh underwriting after a term or offers automatic renewal to avoid coverage gaps.

Ask the experts at AssetPlus for detailed guidance on renewal terms and policy tenure. They'll help you understand how these features align with your long-term health and financial goals.

7. Smoking, Alcohol, and Lifestyle Impact On Insurance Premium

If you smoke, drink alcohol, or have a sedentary lifestyle, insurers consider you a higher health risk. Here's the link between smoking and insurance premiums. Smokers are 2-4 times more likely to suffer from coronary heart disease and stroke.

This categorizes them as a high-risk category, which increases your premium. Increasing obesity, poor diet, and high-stress levels further increase health risks, contributing to higher premiums.

People with a healthy lifestyle and no tobacco or alcohol use benefit from better underwriting terms. Adopting a healthier lifestyle can make insurance premiums more affordable in the long run.

8. Occupation and Risk Exposure

Insurers often have occupational risk classifications that impact the premiums you pay. Jobs involving high stress, physical labour, or exposure to hazardous substances are considered high-risk. For instance, construction workers, miners, or chemical plant operators have higher premiums due to increased risk.

White-collar professionals are charged lower premiums because their roles are less physically demanding. However, sedentary lifestyles and stress are rising concerns even in these roles.

In a study in JACC, Shaan Khurshid, MD, MPH, a cardiologist at the Massachusetts General Hospital and co-senior author of the study, noted - Our findings support cutting back on sedentary time to reduce cardiovascular risk, with 10.6 hours a day marking a potentially key threshold tied to higher heart failure and cardiovascular mortality. Too much sitting or lying down can be harmful for heart health, even for those who are active.

9. Gender And Premium Rate Differences

With varying health risks at different stages of life, gender has an impact on critical illness insurance premiums. In their 30s, women are more likely to develop specific diseases. This leads to higher premiums in their early adult years.

Men are more likely to develop heart disease and other conditions after 55, which results in higher premiums for older males. Some insurers use gender-based underwriting models, but the price difference is usually minimal. Compare multiple quotes to determine how gender affects pricing in your particular situation.

10. Add-On Benefits and Riders

Riders are optional add-ons that provide extra protection in addition to your base critical illness policy. Common riders include -

• Hospital cash benefit gives a daily allowance during hospitalization.

• Waiver of premium after a diagnosis.

• Second medical opinion supporting decision-making in complex cases.

Each rider increases your premium slightly but offers significant value in specific situations. Assess your health condition, age, financial situation, and family responsibilities. Choose riders that support your coverage and align with your personal needs.

11. Insurance Provider and Underwriting Practices

With life insurance and critical illness cover, insurers have recently changed what they ask and how they treat people who used to smoke.

Chris Steele, founder and editor of educational website mytribeInsurance. Even for applicants with similar profiles, premiums can differ significantly between insurance companies. The underwriting policies and pricing structures vary by insurer.

So, compare multiple policies before making a decision. Compare premiums, inclusions, and terms.

Conclusion

The premium for critical illness insurance is influenced by personal factors, such as age, medical history, and lifestyle, as well as critical illness insurance plan features, including sum insured, coverage, and tenure.

Start early to lock in low rates, disclose relevant medical information, and compare plans and riders. Use a critical illness insurance premium calculator and consult a financial advisor to guide you through the process.

The experts at AssetPlus will guide you through the process and help you assess the factors affecting critical illness insurance premiums. Get in touch with your financial expert for personalized insurance guidance.

FAQs

What is underwriting in the calculation of insurance premiums?

Underwriting is a process through which the insurer calculates your health risks by assessing the factors above. This helps the insurer decide if the insurance application should be accepted or rejected, and if accepted, what the premium and claim amount will be.

How should I select the right premium for the critical illness insurance policy?

Here are some tips to choose the right plan for your insurance policy -

• Pick an adequate sum to cover medical and non-medical expenses.

• Assess the risks of critical illnesses to choose an appropriate coverage.

• Some insurers provide discounts for maintaining a healthy lifestyle, no-claim bonus, and more. Check these to reduce the premium amount.

• Assess the needs for rider add-ons and opt for them only if necessary.

Do critical illness insurance plans have a waiting period?

Yes. Critical illness insurance plans do have a waiting period, but it is significantly lower than standard plans. It is usually around 90 days from the date of purchase.