Factors Affecting Critical Illness Insurance Premiums

“Why do some critical illness plans charge over a thousand dollars in monthly premiums, while others with the exact same coverage and coverage amount charge much less?”

I believe many people have similar questions when choosing critical illness insurance products.

It should be noted that the calculation of critical illness premiums is not simple. In addition to considering the incidence rates of various serious illnesses, costs must also be set for different age groups. Other factors such as operational costs, sales expenses, intermediary commissions, etc., must also be taken into account to determine the standard premiums for different age groups.

Then, during underwriting, the insurance company will inquire about whether the policyholder is a smoker, has a family history of genetic diseases, or has suffered from serious illnesses before, etc., to help evaluate the risk level of each policyholder. If the policyholder is assessed to have a higher claims risk, they may need to pay an additional premium, which is commonly known as “Loading,” resulting in premiums that are 10% to 100% higher than the standard premiums.

Since each insurance company adopts different data and operates under different models, even if the coverage difference between two plans is not significant, it is not surprising that the annual premiums can differ by tens of thousands or more.

The insured person’s health is one of the main factors affecting premiums.

Age

Although many diseases have shown a trend towards younger age groups in recent years, serious illnesses such as heart disease, stroke, and cancer are still more common in middle-aged and elderly people. In other words, the older a person is, the greater the likelihood of developing a critical illness, so, like other insurance products, the premium for critical illness insurance increases with age.

Gender

Even for people of the same age, the premiums they need to pay for the same policy may not be the same. This is because men and women have different genes, and statistically, women are more likely to suffer from serious illnesses starting from the age of 30. Therefore, the premiums for adult women are generally higher than for men. However, when they reach the age of 55 to 60, the situation may be reversed. Since men in this age group are more likely to suffer from critical illnesses, such as heart disease, than women, the premiums for older men are generally more expensive than older women’s.

Health Risks

Individuals who have the habit of smoking, a family history of genetic diseases or health problems, are generally more likely to file claims, which increases the insurance company’s payout burden. Therefore, once the insurance company detects changes in the insured person’s health risks, they will adjust the premium accordingly to maintain the balance of the risk pool.

Currently, the insurance industry has not established a unified standard for “Critical Illness Insurance”, so the coverage scope of critical illness plans from different insurance companies can vary greatly.

Normally, the more critical illnesses covered, the more expensive the premium. Currently, there are many critical illness plans in the market that offer coverage for over a hundred serious illnesses as a selling point. Although many of them are rare diseases with very low incidence rates, the premiums are still much higher than policies that focus on common critical illnesses.

Even if you are not in the insurance industry, you must understand the principle that “the higher the coverage amount, the more expensive the premium.”

For example, for Bowtie critical illness insurance, the premiums for a 35-year-old non-smoking male policyholder for coverage amounts of HK$500,000 to HK$2 million are as follows:

Therefore, when purchasing critical illness insurance, policyholders should not blindly pursue high coverage amounts. Instead, they should choose a coverage amount that is “Just Right” based on their actual needs and affordability.

There are many types of critical illness insurance, and premiums may vary depending on factors such as product design, insurance components, and compensation frequency.

Consumption-based vs. Savings-based

Consumption-based and savings-based plans are also known as “Term Critical Illness Insurance” and “Whole Life Critical Illness Insurance.” The former is a pure protection product, and all premiums paid by the policyholder are used to purchase protection, making it relatively cost-effective. The latter uses a portion of the premium for insurance protection and another portion for savings and investment, making the overall premium more expensive.

Single Cover vs. Multiple Covers

Traditional critical illness insurance typically provides only a single claim, and once the compensation is paid, the policy will expire immediately. However, because common critical illnesses such as cancer, stroke, and heart disease have a higher risk of recurrence, insurance companies have gradually introduced critical illness insurance with multiple claims, with compensation starting from two times and even more. However, there are trade-offs, as critical illness insurance with multiple covers, although more comprehensive, will generally have higher premiums than single cover plans.

Insurance companies offer level or progressive options, as well as monthly or annual premium payment options, and premiums may vary depending on the payment method.

Level or Progressive

The charging methods for critical illness insurance can generally be divided into 1) Level and 2) Progressive.

Level refers to premiums remaining the same for a specified period, such as 5 or 10 years. However, after the specified period ends, the insurance company reserves the right to adjust the premium based on actual situations. Progressive means that the insurance company adjusts the premium annually, and premiums increase with age.

In fact, regardless of the charging model used, the total premium that the policyholder needs to pay may not differ too much. Therefore, it is recommended to compare the annual or monthly average premium and choose a plan that best fits personal affordability.

Monthly Pay or Annual Pay

Many insurance companies offer 1) Monthly Pay and 2) Annual Pay options.

If the annual payment option is chosen, there is generally an additional premium discount. However, since it requires a large lump sum payment, it may be more suitable for people with sufficient cash flow to pay a fixed premium amount each month. It is up to the policyholder to choose.

To attract new customers, many insurance companies offer various promotional activities, such as a 3-month of premium-free coverage, a 50% discount on premiums, and other premium rebate discounts, etc.

Undoubtedly, customers can enjoy substantial premium discounts, but most promotions are only valid for the first policy year, and customers will face a significant increase in premiums when the promotion period ends in the next year. Therefore, policyholders should not only compare the first-year premium but also consider the long-term premium level to avoid losing more in the long run.

The reason why the premiums of virtual insurance companies are cheaper than traditional insurance companies is largely due to the different operating models of the two. Many processes of traditional insurance companies involve a large amount of manpower and material resources, and as the scale of development expands, operating costs inevitably become higher. Virtual insurance companies aim to simplify processes and are committed to reducing all unnecessary expenses in the operation.

For example, Bowtie, as the first virtual insurance company in Hong Kong, not only sells insurance directly to customers online but also pioneers an intelligent underwriting system to review applications, without relying on intermediaries to handle insurance and claims, thereby significantly reducing operating costs. This enables policyholders to buy the same or even more comprehensive protection at a more reasonable premium.