So you have just received the renewal reminder for your health insurance policy. You open it and are shocked to find a 25 per cent increase in the premium quoted.

Before you decide to take your insurer to task, you need to be aware of the concept of loading, in the context of renewal premiums.

Loading of premiums is simply an increase in your premiums for the same sum assured because of making claims above a threshold level, your age, and other unfortunate occurrences such as contracting a chronic ailment.

Because such loading can be substantial, you should be aware of the circumstances and the extent of increase in premiums as you may have to shell out substantial sums to continue your policy.

Loading costs

There are multiple events that could cause your premiums to rise. The first and most common reason is if a claim that exceeds a threshold (say 25 per cent of sum assured) is made and paid in a particular year. There may not be loading immediately, but if a claim is made successively for, say, the next couple of years as well, it is quite certain that the insurance company will increase your premium.

Second, if you have gone from one age band to another – say you turn 61, pushing you out of the 55-60 age bracket – a new premium will be applicable. Similarly if you turn 66, the outflow would change.

As you age, the risks of ailments are higher and hence there would be increase in premiums.

Finally, if you contract an ailment that may require you to take treatment periodically for a long period of time, the chances are that you would make claims regularly on the insurance company.

The reasons given here for premium loading are by no means exhaustive, but are indicative.

Extent of enhancement

The extent of premium loading varies. For example, if you take United India Insurance’s Family Medicare policy, and make at least three claims during the two immediately preceding years, your premiums would rise.

The loading would be from 25-100 per cent depending on whether you have made claims to the extent of 25-100 per cent of sum assured. So if you have been paying Rs 2,400 for Rs 1.5 lakh sum assured, you could end up paying Rs 3,000-4,800 for the same amount.

Moving from one age band to another, say 31-35 to 36-40, would mean increase in premiums to the tune of 10-15 per cent across insurance companies.

There is another ‘macro’ reason where your premiums could go up. In case of an ‘adverse claim ratio’ — claims made to an insurance company exceeding its income — there would be an increase in your premiums.

For example, Bajaj Allianz Health Guard policy states that there may be a loading of 50 per cent in premiums in case of an adverse claim ratio.

There are some private insurers that do not load premiums even if claims are made.

They gradually increase costs in phases over a longer period and immediately after a claim year. Max Bupa and Aegon Religare fall in this category.

But here, there is an important point to note. These insurance companies do not offer the cumulative bonus that public sector and many private sectors insurers offer.

Insurance companies such as HDFC Ergo, Bajaj Allianz and ICICI Prudential offer a cumulative bonus of 5 per cent of sum assured for every claim-free year, subject to maximum limits of 25-50 per cent.

That is to say, if you have not made claim and had a sum assured of Rs 5 lakh last year, this time around the figure would be Rs 5.25 lakh. This could go up all the way to Rs 7.5 lakh!

Of course, some or all of this would be taken back in case of a claim.

If the loading is not too adverse, you must still go ahead and pay the increased premium as it would keep you insured.

> venkatasubramanian.k@thehindu.co.in

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