Skip to main content

What is loading factor in insurance and its affect on your premium?

Invest In Tax Saving Mutual Funds Online

Call 0 94 8300 8300 (India)

Load factor in insurance

Amit Sharma had taken a mediclaim policy a few years ago from an insurance company of repute and he also seemed very much satisfied with that policy till sometime back. The reason being that the insurance company had readily honoured his claim for medical expenses, which he had incurred last year for undergoing a sudden heart surgery. However, Sharma got the shock of his life when he tried to renew his policy in July this year as his premium had gone up substantially. When he inquired further, he was told that was because of something called 'loading'.

Now loading was something which he had never heard in his life. Like Sharma, many of us are not aware of the presence and purpose of 'loading' in insurance and its affect on policy premiums. So, what is loading after all, one may ask? According to insurers, loading is an additional cost built into the insurance policy to cover losses which are higher than anticipated for the company arising from insuring a person who is prone to a form of risk.

Loading as a concept, thus, comes into play when an insurance company is dealing with a high-risk candidate, and is resorted to by insurance companies in cases where the risk to the individual is higher than in ordinary circumstances. This can be due to medical history, a dangerous job, or a hazardous pastime.

Various Types of Loading and Factors Which Affect Premium

Loading primarily occurs in life as well as health insurance plans. In general insurance there is usually underwriting-based loading and claim-based loading. However, after the introduction of Health Insurance Regulations 2013, claim-based loading has been removed from all health policies.

The waiver on claims loading is a major benefit now as insurers cannot charge higher premium based on an adverse claim history in the previous policy year.

Another benefit to the policyholders is that premium can't be changed for at least 3 years, which will bring in consistency in pricing and policyholders need not worry about its increase at least for the initial 3 years.

This means that Mr Sharma's premium possibly wouldn't have increased because of the loading factor had he renewed his policy after 1st October this year.


In life insurance, the amount of your premium usually depends on the amount and term of your insurance and the type of policy you want. However, the main factor that determines the premium is your age.

That is because as age increases, the probability of mortality increases and hence the premium for a 50-year-old person will be significantly higher than that for a 25-year-old person.

Citing an example, he says that in a group if all applicants are absolutely healthy and all are 45-year old, the probability of mortality for all will be the same and hence the premium will be the same for all the persons in the above group. If, however, one of them is obese, then there is a higher probability of damage to the end organs, like brain, heart and kidney, in this person and hence his longevity will be adversely affected. Here the premium charged to this person will have to be higher than the rest, to be equitable to all. This extra premium collected from the adverse life is called loading - medical loading to be precise.

In some advanced markets gender is also considered for pricing. For instance, female lives in the reproductive age groups are considered favorable for insurance due to lesser probability of morbidity and mortality.

Some other factors which may affect the mortality and morbidity include:

> Smoking/contact with tobacco or nicotine in any form

> Various medical conditions in the proposed insured as well as in the family

 > Occupation

> Place of residence

For instance, premiums for smokers can be as much as double the cost for non-smokers due to an increased risk of smokers dying younger.

Also, people living in some countries where political unrest is common or probable have to face residential loading. Occupational and residential loading is usually in the form of a fixed rupee value on per thousand sum assured that the customer buys, whereas the medical rating is an extra premium as a percentage of the basic premium that the applicant pays.

The whole idea of adding a loading, be it medical, occupational or residential, is that life insurance will work only if the premium charged to each individual is equitable and proportionate to the risk that the life brings to the insurer.

Happy Investing!!

We can help. Call 0 94 8300 8300 (India)

Leave your comment with mail ID and we will answer them

OR

You can write back to us at PrajnaCapital [at] Gmail [dot] Com

---------------------------------------------

Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.

Invest Tax Saving Mutual Funds Online

Tax Saving Mutual Funds Online

These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)

Download Tax Saving Mutual Fund Application Forms from all AMCs

Download Tax Saving Mutual Fund Applications

These Application Forms can be used for buying regular mutual funds also

Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )

  1. ICICI Prudential Tax Plan Invest Online
  2. HDFC TaxSaver Invest Online
  3. DSP BlackRock Tax Saver Fund Invest Online
  4. Reliance Tax Saver (ELSS) Fund Invest Online
  5. Birla Sun Life Tax Relief ‘96 Invest Online
  6. IDFC Tax Advantage (ELSS) Fund Invest Online
  7. SBI Magnum Tax Gain Scheme 1993 Invest Online
  8. Sundaram Tax Saver Invest Online
  9. Edelweiss ELSS Invest Online

------------------

Best Performing Mutual Funds

    1. Largecap Funds Invest Online
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Birla Sun Life Front Line Equity Fund
    2. Large and Midcap Funds Invest Online
      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
    1. Mid and SmallCap Funds Invest Online
      1. Reliance Equity Opportunities Fund
      2. DSP BlackRock Small & Midcap Fund
      3. Sundaram Select Midcap
      4. IDFC Premier Equity Fund
    1. Small and MicroCap Funds Invest Online
      1. DSP BlackRock MicroCap Fund
    1. Sector Funds Invest Online
      1. Reliance Banking Fund
      2. Reliance Banking Fund
    1. Tax Saver MutualFunds Invest Online
      1. ICICI Prudential Tax Plan
      2. HDFC Taxsaver
      3. DSP BlackRock Tax Saver Fund
      4. Reliance Tax Saver (ELSS) Fund
    2. Gold Mutual Funds Invest Online
      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund

Popular posts from this blog

Stick to Good Fund Manager who Can Multiply Your Investment

A manager may be the difference between the best and worst funds. Here's how you can find the right one    Does a mutual fund manager make a difference to your investment? The answer may not be as easy as you think, since most best-performing mutual funds have moved away from individualistic fund management to process-driven methods, limiting the scope of an individual's role in investment decisions. In fact, many fund managers would speak at length about how the "system" their fund house has in place makes their task of picking stocks easy even though it restricts their freedom. Still, the question is important, especially after recent reports that the Securities and Exchange Board of India ( Sebi ) may ask fund managers to disclose to investors their track record of managing money. Let us take a look at the universe of large-cap funds over the past five years. According to Value Research, an independent mutual fund tracking firm, the topper in the category is DSP...
Read more

Tata Fixed Income Portfolio Fund dividend

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India)       Tata Mutual Fund has announced dividend under the dividend option of Tata Fixed Income Portfolio Scheme B2 Plan A-DQ, Tata Fixed Income Portfolio Scheme B2 Reg-DQ and Tata Fixed Income Portfolio Scheme B2 Direct-DQ. The record date has been fixed as August 29, 2013. Happy Investing!! We can help. Call 0 94 8300 8300 (India) Leave your comment with mail ID and we will answer them OR You can write back to us at PrajnaCapital [at] Gmail [dot] Com --------------------------------------------- Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C. Invest Tax Saving Mutual Funds Onlin...
Read more

Bear markets may kill, but bulls always return with vengeance

Average Gain Between Any Two Downturns Has Been 186% IF you have lost a fortune in shares by now, the best way to make it up perhaps could be by buying some more. Since the Great Depression of 1929, the world has undergone 12 major bear market phases. The average bear market has lasted about 22 months, and the market has fallen by an average of 51%. However, the average gain during the bull market between any two downturns has been an eye-popping 186%. The index here in question is the S&P 500. Bull markets — after every recessionary phase — have always been good for investors. All major bull rallies since end-1930 have resulted in markets gaining between 50-500%. Historic numbers show that the magnitude (size or breadth) of a bull market is much heavier than that of a bear market. The million dollar question is: Are we at the threshold of another bull market rally? Markets could go up intermittently, but convincing rallies will take time to happen. The current bear phase is...
Read more

NRIs and direct taxes code (DTC)

DTC Proposes To Do Away With Special Provision That Allows NRIs Liberalised Duration Of Stay In Country      THE new direct taxes code could bring a large number of global Indians under the tax net, as it does away with a provision that allowed individuals to escape tax in any country citing double tax avoidance.    The new legislation, introduced in Parliament on Monday, says an individual shall be a resident of India in any financial year if he is in the country for more than 59 days in that year, and has been has been India for more 365 days in four preceding financial years. A number of Indian industrialists including Vedanta's Anil Agarwal and Essar's Ravi Ruia have acquired non-resident status over the years.    The DTC has only attempted to clean up the provision in line with the laws globally. A phrase "being outside India" in the existing income tax law exempted individuals who stay outside the country for six months from paying taxes. This was prone ...
Read more

Selling is a critical activity in investment process

  ONE of the questions that investors have with respect to their equity mutual fund holdings is for what time period they should hold their investments and when they should sell them. There is no easy answer to this and the end result would actually vary with individuals, but it's important to check a few things before deciding on the time to divest holdings. No decisions are perfect, but when made in a proper manner, the chance of acceptance increases without much problem. Beneficial: Investors look at decisions beneficial for them. In the actual sense, any investment that results in a gain for the investor is beneficial as far as they are concerned. When it is for equity-oriented funds, then there is another condition that is also beneficial. There will be a lower rate of tax for the holdings that are long term in nature. If the holdings are maintained for more than a year, then the rate of tax on the investment will be zero and, hence, this will turn out to be beneficial ...
Read more
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now