Initial Premium Provision

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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UPDATED: Jun 19, 2018

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(Typical wording*):

Initial Premium: The Initial Premium specified on the Policy Schedule is due and payable to the Company at its home office on or before the Issue Date. This Initial Premium payment will keep this Policy in force until the First Premium Renewal Date. The amount of the Initial Premium and the First Premium Renewal Date are shown on the Policy Schedule. Initial Premium has been determined by Us (the Company) for this Policy on a Class basis. Your (the primary insured shown on the Policy Schedule) Class for Initial Premium was determined by Us based upon a combination of the following factors: (i) Your zip code (either first 3 or first 5 digits); (ii) Your county of residence; (iii) Your state of residence; (iv) the number, age, sex and tobacco use of each Insured listed on the Policy Schedule; (v) the plan of coverage contained in this Policy on the Issue Date, including its deductibles, Benefits, limitations, and exclusions; (vi) the health status of each applicant, including the results of any required physical examination and laboratory test results; (vii) the Participating Provider network selected on this application; (viii) the underwriting risk assessment of each Insured; (ix) the discounted and preferred premium rate status of an Insured; (x) premium rate ups, if any, for any Insured; (xi) Mode of Premium Payment selected on the application; (xii) distribution channels; (xiii) administrative costs; and/or (xiv) taxes; (xv) other policies of insurance issued and to be issued by Us covering individuals in Your current state of residence with the same or similar attained factors described above.

As you can see, there are a vast number of factors that go into determining the premium on your individual health insurance policy. The first consideration is where you live. Is it a high-risk area? Then the age, gender and tobacco use of each person to be insured under the policy is considered. Each age or age group has its own level of risk. Each gender has its own level of risk. Tobacco use is an obvious risk factor. Some of this grouping may seem to be unfairly discriminatory.

The insurance company discriminates between all of these various groups, but it is based on statistical and actuarial data compiled by the company that supports the fact that there are differences in risk between these groups. Therefore, there is statistical support for the different premiums charged. To have no groupings in determining premium assessment could be argued to be unfairly discriminatory to those in the healthier group.

The type and amount of coverage you are applying for will also affect the premium, as will the health status of each potential insured. Some individuals in a family policy may be eligible for a reduced (preferred) premium while others may be rated up above normal rates.

If you pay your entire premium for the year in advance, your total premium will be less than if you pay on a monthly basis because the insurance company can earn interest on your entire premium if it has it the entire year. “Distribution channels” (xii. above) refers to the way the policy was sold – in other words how much does the insurance company have to pay in commission for the sale. Companies have different ways of paying agents, depending on their contractual relationships. Whatever the sales cost is to the company will be incorporated into the premium cost for the insurance.

All of this detail is not required in the policy, but many companies now go out of their way to try to make every detail as clear as possible to protect them against law suits

*Wording may vary from contract to contract and from state to state.

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