Paying more for poor health

When Prasanna Kishore wanted to take an additional life cover of Rs 45 lakh, he used a web-based premium calculator to find out how much would it cost. But after he got his medical examination done, his insurance agent quoted a premium that was a good 15% higher. "I had thought the insurance company would give me a good deal because I was an existing customer," says the 39-year-old Bangalore-based corporate executive. What Kishore didn't realise, however, was that the medical tests he underwent placed him on the borderline of diabetes. The insurance company factored in the risk and accordingly hiked the premium payable on the pure term policy he opted for.

Sedantary lifestyles and faulty eating habits are not only pushing a growing number of urban Indians to poor health, they are also causing life insurance premiums to shoot up. Says Kalpana Sampat, head of Underwriting, Claims & Group Operations at ICICI Prudential Life Insurance: "The medical check-up helps us assess the additional risk on a life. Based on this additional risk, we charge an excess premium." For Kishore and tens of thousands of others who find themselves in a similar situation, it's a new world order where you pay more even if you are likely to contract a certain illness.

To correctly assess the risk involved, an insurance company goes through the personal details of a potential customer with a fine toothcomb. Every single bit of information is scrutinised, including past health condition. "One has to take into account several parameters, including gender, age, smoking status, family history, personal financial situation and occupation," explains Bryce Johns, development actuary and CIO of Kotak Mahindra Old Mutual Life Insurance.

For the same reason, it is important that the information provided by an individual is factually correct. If someone is suffering from a medical condition, he should state that in the application form. Hiding a pre-existing ailment or even your smoking status may be a tempting thought because that would mean a lower premium. But it could also mean trouble when a claim is raised. Warns Johns: "If it is discovered that the life insurance claim arose because of a pre-existing condition that the policyholder deliberately and knowingly withheld at the time of application, the claim can even be rejected."

In extreme cases, if a customer is found to be suffering from a serious disease or is likely to contract one in the future, the insurance company may even refuse to sell him a policy. "Some people face very high risk to their lives and we may avoid taking them on board," says Deepak Satwalekar, managing director and chief executive officer, HDFC Standard Life Insurance. There are instances when life insurance is denied to people because of the risky profession they are in.

Typically, insurance companies insist on medical examination if the applicant is over 40 years, an age when adverse health conditions start emerging. But a health checkup is not always driven by age. It will be required even if a young individual applies for a very high insurance cover. To ensure that they do not end up extending life cover to a terminally ill patient, insurance companies subject such high-value customers to extensive medical check-ups. "The rigours of health checks go up with age and when someone opts for a relatively high cover," says Sampat. The medical tests range from a simple physical check-up to elaborate blood tests, X-rays, electrocardiograms and detailed pathological examination (see table: Year Marked for Insurance).

Of course, the customer isn't always on the losing side. Health conscious policyholders who take definitive steps to improve their erratic lifestyles and control their medical condition are often rewarded with lower premiums later. For instance, an asthma patient or a hypertensive person who takes due precautions may get insurance at normal rates. However, the onus would be on him to produce evidence that he has managed to control his health condition.

A change in lifestyle also does not go unnoticed. If someone gives up smoking or any such addictive habit and comes back for a review, there is hope for him. "Globally, insurers are actively encouraging healthier lifestyles. Gym memberships and regular use of such facilities, for example, may lead to rebates on the premium in the future," says Johns.

So, what medical conditions can lead to a higher premium? "Any health impairment which has an impact on mortality would have an impact on premiums," explains Satwalekar. That would include high blood pressure, diabetes and loss of vision or hearing because that increases the risk to life. However, non-progressive conditions like a physical deformity would not make much difference. This means that even if a person is physically challenged but is otherwise healthy, he would pay a lower premium than a fully fit man who smokes or keeps poor health.

The worst affected policies are the pure life cover term policies. There the difference in the premium would really show up. Premiums on policies such as unit-linked insurance plans, on the other hand, tend to be uniform whether the policyholder is an athletic 25-yearold or a 40-year-old couch potato weighing over 90kg. Endowment and whole life policies might also have some variation in premiums.

Not only is life insurance getting more complex, it is also adding costs that nobody had thought of earlier. In future, your ability to pay the premium will not be the only determinant of your life cover.

Your health and lifestyle will also play a vital role. If you lead a sedentary lifestyle, with those two pegs and a pack of cigarettes thrown in, you need to watch out. The price you will have to pay for such luxuries can alter your life's financial plans.