Loading Charges in Health Insurance, Meaning & How it Works?

Have you ever wondered why your health insurance premiums seem higher than your friend's even if you have bought the same insurance from the same company with the same coverage?

Well, that is because of the loading in health insurance. 

Loading is an additional amount added to the premium for certain “risky individuals”. Risks can be due to a person’s medical history, habits, or a hazardous occupation.

Insurers use loading to cover these increased risks and potential losses with such individuals. Read the article to understand loading and how it works in a health insurance policy.

Loading is an extra sum included in the insurance premium. It is added to cover a "risky" person.

Confused? Here is a simple explanation:

Age and medical history are just two of the many variables that determine the prices of health insurance plans. The extra expense a policyholder must pay over their base premiums due to growing older or developing additional risk factors is known as Premium Loading.

This idea recognizes that certain individuals with higher risk factors need more coverage, which raises costs. Health insurance firms use this practical strategy to control risk and offer extensive coverage.

Both initial premium loading and renewal premium loading after a claim were methods used to apply loading charges in health insurance. However, claim-based loading was removed for all health policies after implementing the Health Insurance Regulations in 2013. Let’s see in detail these types:

Higher Initial Premium Loading

The insurance company evaluates your age, gender, occupation, lifestyle, medical history, pre-existing conditions and other factors while evaluating your application for health insurance to calculate your risk of being insured.

Your insurance company may apply an extra loading charge to your premium if it determines that you are a risky customer based on these factors. This is referred to as initial premium loading.

Higher Renewal Premium Loading

The insurance company may automatically categorize a policyholder as high risk when they file a claim because of the policyholder's alleged increased likelihood of filing another claim for the same illness.

This may be the case for some diseases, such as cancer, but with treatment, many other serious illnesses may have a decreased risk of recurrence. Therefore, using the previously stated reasoning, insurance firms may justify raising the renewal premium for the next year. This process is termed as Renewal Premium loading.

Do you wonder what factors affect the cost of the loading amounts in Health Insurance? Insurance firms consider several criteria when determining premium costs, ultimately impacting the loading amount. Here are some of them:

1. Age

One factor taken into consideration when determining premiums and loading in health insurance is the person's age. This is because as one ages, the chances of mortality, hospitalization, and medical expenses related to illnesses are more likely to increase. So, the premium for a 50-year-old will be significantly higher than that for a 25-year-old.

For example, while a 25-year-old person might have to pay a premium of ₹2,414/year for a sum insured of 3 lakhs for health insurance, one who is 50 might have to pay ₹6,208/year to get the same sum.

2. Medical State

Another important factor in loading is an individual's medical state. This could be when someone has a recent history of surgeries, serious illness, or other medical issues, such as a raised sugar level. In this case, loading might be applied upon renewal.

However, it is important to note that in such instances, the loading can also be reviewed when the person’s situation changes (such as when the individual lowers their sugar levels).

3. Pre-Existing Medical Conditions

When a person is suffering from a pre-existing medical condition such as diabetes, high blood pressure, or asthma, they will likely have to pay a higher premium compared to healthy people of the same age group.

This is usually because when someone has a pre-existing condition, it can result in more claims for hospital expenses and higher medical bills. Thus, insurance companies might see them as a higher risk and consider loading their health insurance premium.

Read: Pre Existing Disease Cover in Health insurance

4. Smoking Habits

One factor that has a major impact on the loading of health insurance premiums is tobacco or nicotine use. Whether this is smoking or chewing tobacco, there is a higher risk of covering a person, as chances of lung infections, cancer and other critical illnesses will increase drastically.

In fact, health insurance premiums for smokers can be almost double those for non-smokers. While a 25-year-old non-smoker might have to pay ₹5,577/year for a sum of ₹1 crore, a 25-year-old smoker would pay around ₹9,270/year for the same amount.

Other Factors That Affect Loading Amount in Health Insurance

• Occupation – If your job includes work that is hazardous to your health, the insurer might offer you a higher premium on health insurance.
• Place of Residence – In case the area you live in has higher incidences of climate issues or unrest, you might have to face residential loading.
• Obesity – Insurance companies consider overweight individuals (based on BMI) more prone to illnesses such as diabetes, hypertension, etc. Since this might lead to higher claims, they will consider loading the health insurance premium.
• Medical History of your Family – If your direct family members (like parents or grandparents) have a history of illnesses like cancer, heart disease, Alzheimer's, etc., you will likely be at a higher risk for these illnesses. Thus, insurers will consider a higher premium.

Loading is often confused with exclusions, but they are not the same. To understand the difference between them, let us first understand what an exclusion is:

Exclusions are situations in which a policyholder keeps paying the same premium (without incurring loading fees) under specific circumstances.

For example, your insurance policy might exclude cancer-related expenses or treatments, or maternity-related expenses, or injuries related to adventure sports. Then, you will not be able to claim these situations.

These days, many insurance companies will offer you a choice between loading or exclusion. It’s your decision to choose the best policy for yourself, either with exclusions or loading in premium.

Most insurers and financial experts believe loading is justified in many cases to protect the insurer and the customer. Here are some instances when loading charges are applied to Health Insurance:

• Policyholders are above the age of 65-80 years
• He/She is suffering from major ailments like hypertension or diabetes
• Having a lousy health habit such as smoking or drinking

Thus, a health insurance company considers all these factors while calculating a person’s premium and loading charges.

For example, let us consider two people who have the same insurance coverage, but one of them has a higher health risk. Without loading, they would both pay the same premium, which would be unfair to the low-risk individual who would end up paying more.

Many policyholders are frequently left wondering whether loading in health insurance is acceptable. This strategy aims to provide reasonable premium prices for high-risk and no-risk policyholders, although there are benefits and drawbacks.

The idea is justified in helping both the insured and the insurers. Claims from high-risk clients can help the insurance company cut down on its losses. In addition, the insured can benefit from increased coverage for themselves and their loved ones and greater access to treatment facilities.

In this way, yes, loading is acceptable in health insurance to provide coverage to policyholders who are likely to have future complications.

Before opting for a health insurance plan, you must know a few things about the loading charges. It includes:

• Select a plan with a minimal health insurance waiting period that covers critical illnesses.
• Select a policy that offers protection against pre-existing conditions without requiring you to pay loading fees.
• Verify the percentage of the loading amount that you must pay once your health insurance policy is issued.
• Find out from the insurer whether loading fees will increase as you age or when your policy is renewed.
• Verify if there are any additional loading fees if you decide to transfer your health insurance policy to a different insurance company.

Loading might increase your premium, but it reflects the insurer’s efforts to balance risks and ensure comprehensive coverage. Knowing how loading works in health insurance allows you to plan effectively and choose the right coverage to secure your health and finances without surprises.