When buying a health insurance plan, it’s important to understand how deductibles work. Most policies include this feature and choosing the right deductible can significantly lower your premium. Since a deductible is the amount you pay out of pocket before your insurer starts covering costs, knowing how it works ensures you select the coverage that truly fits your needs.
Read on to learn what deductibles are, the different types available and how they can benefit policyholders.
Understanding Deductibles
Two key points to remember when understanding deductibles are:
- A deductible is the annual amount you must pay before you can submit a claim.
- Your insurer’s coverage starts only after you have paid this amount out of pocket.
In simple terms, the deductible is the amount you pay out of pocket for medical or hospitalisation expenses. When you file a claim, the insurer subtracts this amount from the total claim and pays the remaining balance.
Choosing a deductible can be beneficial if you are young and have minimal health risks, as the likelihood of frequent claims is low. This allows you to enjoy lower premiums. However, opting for deductibles in senior citizen health insurance is generally not advisable. Since seniors are more likely to make claims, a deductible may reduce the final payout and increase out-of-pocket expenses.
Here are two examples to help you understand the concept of deductibles better:
Illustration 1 (When the Claim Amount is More Than the Deductible)
- Policy coverage: ₹15 lakh
- Annual deductible: ₹1 lakh
- Medical expenses claimed: ₹3 lakh
- Final claim paid by insurer: ₹2 lakh
Explanation:
Since the claim amount (₹3 lakh) is higher than the deductible (₹1 lakh), the insurer subtracts the deductible and pays the remaining ₹2 lakh.
Illustration 2 (When the Claim Amount is Less Than the Deductible)
- Policy coverage: ₹15 lakh
- Annual deductible: ₹1 lakh
- Medical expenses claimed: ₹75,000
- Final claim paid by insurer: ₹0
Explanation:
Because the actual expenses (₹75,000) are lower than the deductible (₹1 lakh), the insurer does not pay anything. The entire cost has to be borne by the policyholder.
Types of Deductibles in Health Insurance
Health insurance generally include two types of deductibles:
- Compulsory deductibles: These are fixed by the insurer and must be paid by the policyholder. Since you cannot change this amount, compulsory deductibles do not affect your premium.
- Voluntary deductibles: Here, you can choose the deductible amount based on factors such as your budget, coverage needs and age. A higher voluntary deductible usually means a lower premium. However, if you are buying senior citizen health insurance, it’s important to choose this amount carefully. A high deductible can significantly reduce your claim payout, increasing your out-of-pocket expenses.
Other types of deductibles you may come across when buying health insurance include:
- Cumulative deductibles: This applies to family floater plans. A single deductible amount is shared for the entire family and it must be met collectively before the insurer starts covering expenses.
- Comprehensive deductibles: You pay a fixed annual deductible once for the whole policy year, no matter how many claims you make. After this amount is paid, the insurer covers the remaining amount as per the policy terms.
- Per-claim deductibles: Under this, you must pay a deductible amount every time you file a claim. Each claim triggers a separate deductible.
Advantages of Deductibles in Health Insurance
Deductibles play an important role in health insurance for several reasons:
- Encourages responsible claim filing: Because you must pay the deductible before submitting a claim, you are less likely to file claims for minor or unnecessary expenses. This also helps prevent misuse or fraudulent claims.
- Lower premiums: With voluntary deductibles, you can choose the amount you wish to pay out of pocket. In return, insurers offer lower premiums since you are sharing part of the financial risk.
- Helps preserve no claim bonus (NCB): Deductibles promote disciplined claim behaviour. When you avoid unnecessary claims, you are more likely to earn NCB benefits such as reduced premiums or enhanced coverage at renewal.
- Protects your coverage amount: Fewer claims help keep your total coverage amount available for genuine medical needs or emergencies. This ensures that your policy sum insured remains sufficient when you need it the most.
Conclusion
Understanding deductibles in health insurance plans allows you to choose the right coverage for yourself and your family. While deductibles can help lower premiums and encourage thoughtful claim filing, it’s important to consider factors such as age, medical history, existing conditions and lifestyle before selecting the deductible amount. Making an informed choice ensures you enjoy benefits such as reduced premiums, preserved no-claim bonuses and better protection for your overall coverage.
Don’t stop now! Here are more topics you might find interesting.
