Premium Loading in Health Insurance: What is it and why does it occur?

Have you ever wondered why your health insurance premium is more than someone else’s? There could be a variety of causes, but one factor that can have a major impact on your premium is known as “loading.” Most of us haven’t heard of this term before and how much it can impact the premium one is paying. What is it and why you should know about it are all discussed in this article.

What is “loading” in health insurance?

Loading in health insurance and life insurance plans is an additional expense added to your policy premium. It is essentially a means for insurance companies to pay for the increased risk of insuring you. In other words, if you’re at a higher risk of filing a claim, the insurance company will add a loading fee to your premium to cover the estimated expenses of your medical care.

There are two primary forms of loading

Underwriting-based loading: This sort of loading is determined by your personal characteristics, including age, medical history, lifestyle habits (such as smoking), occupation, and family medical history. People who are older, have a history of chronic diseases, or participate in riskier hobbies are more likely to have a higher premium loading.

Loading based on claims: This sort of loading was based on the claims history of a group of policyholders. However, with the implementation of the Health Insurance Regulations in 2013, claim-based loading was removed from all health insurance agreements.

Why does loading happen in health insurance?

First, one has to understand that insurance companies are in the business of managing risk. They combine the premiums paid by numerous policyholders to pay the medical expenses of a small number of people who file a claim. However, certain individuals are statistically more inclined to make claims than others. To ensure that they have enough money to meet these claims, insurance companies charge higher premiums to customers who are deemed high-risk. Loading is a strategy for spreading the expense of insuring high-risk individuals across the whole pool of policyholders. Loading just doesn’t happen in health insurance but life insurance plans as well.

Here are some of the frequent variables which can cause loading on your health insurance premium as well as in the life insurance plans:

Age: As you become older, your chances of developing health problems also increase. This explains why premiums tend to rise with age.

Medical history: If you have a pre-existing medical condition or a history of chronic disease, you are deemed a higher risk and will most certainly charged a higher premium.

Lifestyle habits: Certain lifestyle choices, such as smoking, obesity, or drug use, can raise your risk of developing health problems. This can result in a higher premium with a loading fee.

Occupation: Certain occupations are classified as high-risk due to the possibility of injury or exposure to hazards. People in these careers may incur higher premiums due to loading.

Family medical history: If you have a family history of specific medical conditions, you may be deemed more likely to develop them yourself. This can affect your premium calculation and lead to loading.

Is it justified?

Some insurers and financial experts argue that loading is permissible in some instances, but not in others. Most insurers set an age limit for new applicants, which ranges from 65 to 80. This is due to the difficulty in identifying the risk factor, which eventually decides the premium. Loading as a concept is justified as it is there to protect both the insurer and the customer.

From an insurer’s perspective, it covers the possibility that an insurer’s losses for a certain time would be larger than expected due to a risky customer. From a client standpoint, it enables those with a slightly higher risk factor to obtain insurance coverage. Additionally, if two people have the same insurance cover while one person’s risk to life is higher than the others, without loading, it would be unfair to the low-risk individual as s/he would be paying a higher premium in comparison. 

However, in other circumstances, loading may be unjustified. For example, when an insurer imposes a loading based on a history of cataract or hernia surgery, it is not justifiable because both conditions are curable and the chance of subsequent complications is low.

What Should a Consumer Know About Loading Before Purchasing a Policy?

A customer should inquire about the reasons for loading, the circumstances of loading, the proportion of loading, whether it applies to successive renewals, and whether the loading will increase as the age progresses.

S/he should also keep in mind that each company’s loading policy is unique. This is because each firm has its unique underwriting standards. In most cases of health insurance, if claims have been filed and the consumer decides to switch to another insurer, loading will still apply. Another benefit of loading is that it may be reconsidered if a person’s circumstances change. For example, if loading was relevant for a candidate due to elevated sugar levels, the insurance company can reconsider the premium if the individual decreases his sugar levels and maintains them.

At last,

Loading in health insurance allows insurance firms to manage risk and guarantee they have adequate money to meet medical claims. While it may raise your premium, keep in mind that it contributes to making health insurance more affordable for everyone. Understanding how loading works and the factors that influence it allows you to make informed decisions regarding your health insurance coverage.