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What are Deductibles in Health Insurance Policy?

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When the risk of both accidents and ailments looms large, buying the best health insurance in India is a wise call to safeguard your finances during medical emergencies. But a health plan that offers comprehensive coverage comes at a premium that can leave policyholders high and dry, especially if they have a history of hospitalisation or have pre-existing diseases. One can raise the deductible amount to reduce the premium and bring it under the budget. But the concept of a deductible is not very clear to many. For instance, most people wonder why insurers pitch the idea of deductibles. Well, let's clarify your doubts by understanding what are deductibles in health insurance and their types and benefits.

What are deductibles in health insurance?

A health insurance deductible is the amount a policyholder must pay before filing a health insurance claim. This means the insurance company will pay the claim amount only after you have cleared the deductibles. In other words, your insurer will pay only when the claim amount exceeds the deductible. If the amount is less than the deductible, the insurer will pay nothing, and your claim will get denied.

Example:

Let us understand what exactly is a deductible with the help of an example.

You have a health insurance policy with a sum insured of Rs 3 lakh and a deductible of Rs 30,000. You have to undergo surgery which will cost Rs 50,000. So, before raising a claim, you need to pay Rs 30,000 out of your pocket, and the insurer will pay the remaining Rs 20,000. Now, imagine you have to be hospitalised for an illness, and the bill comes to Rs 20,000. Now, since this amount is less than the deductible amount of Rs 30,000, you have to bear the entire surgery cost, that is, Rs 20,000. You cannot raise any claim because it is less than the deductible.

Types of deductibles in health insurance

Let's look at the categories of deductibles in health insurance available both in India and the international market.

1. COMPULSORY DEDUCTIBLE:

The compulsory deductible is fixed by the insurance company, and you have to compulsorily pay this amount whenever you file a claim. For instance, if your health insurance has a compulsory deductible of Rs 10,000 and the hospitalisation expense is Rs 50,000, you have to pay Rs 10,000, and your insurer will pay the remaining. Since the deductible amount is fixed, there's no impact on the premium of your policy.

2. VOLUNTARY DEDUCTIBLE:

As the name suggests, this deductible is voluntary, and you can opt for it to reduce the premium. You can choose the deductible amount based on your affordability and medical expenses, as this amount has to be paid from your pocket each time you raise a claim. For instance, if you opt for a voluntary deductible of Rs 1 lakh and the hospital bill is Rs 1.5 lakh, you have to pay Rs 1 lakh, and the insurance provider will pay the remaining. This is usually recommended for those who do not raise claims regularly and want to pay a lower premium. The higher the deductible amount, the lower the policy's premium.

3. CUMULATIVE DEDUCTIBLE:

This is only applicable to family floaters or family health insurance plans. As the family floater covers all members of the household under one plan, the cumulative deductible is applied when any insured family member raises a claim.

4. COMPREHENSIVE DEDUCTIBLE:

This is a single deductible that keeps adding up until you have paid the total amount.

5. NON-COMPREHENSIVE DEDUCTIBLE:

This type of deductible applies only to specific covers and not the entire policy. You may have to pay for the specific medical costs before raising claims.

How do deductibles work?

Deductibles work by benefitting both policyholders and insurance providers in certain ways.

• Benefits to policyholders:

Since deductibles divide the risk between insurance companies and policyholders, policy premiums are reduced by a significant amount. This particularly helps people with limited financial resources to buy adequate health insurance.

• Benefits to insurance providers:

Deductibles discourage policyholders from raising small claims with the insurance provider. When the deductible clause is applicable, policyholders must pay the deductibles before the insurance companies start to pay. Therefore, policyholders may refrain from making small claims to earn the no-claim (NCB) at the end of the policy term.

Moreover, deductibles prevent policyholders from misusing their health plans and making fraudulent claims.

Deductibles vs. Premium

The following table will help you understand the differences between health insurance premiums and deductibles.

Choosing the right deductible in health insurance

The right deductible depends on some factors, such as age, health, family history, and health insurance premiums.

• Age:

If you are young, healthy, and less likely to make health insurance claims, you can choose a high deductible to reduce policy premiums.

• Health:

If you suffer from certain health issues and are likely to make health insurance claims, a high deductible amount will increase your financial liabilities. Therefore, you must do your calculations and choose an amount you can pay from your pocket when you raise a claim.

• Family history:

If there is a family history of health conditions, you are more likely to file health insurance claims. In this case, you must refrain from choosing a high deductible.

• Policy premiums:

If you find health insurance premiums high and exorbitant, you can choose a high deductible. This will help you stay covered under health insurance. However, remember to choose a deductible that you can pay from your pocket during medical emergencies.

• Family floater:

If you have a family floater, you must choose a low deductible. For a family health insurance policy, insurance companies apply deductibles on all family members covered under the policy. So, if there is a medical emergency, you must pay the total deductible before the insurer starts covering your medical bills.

Therefore, if you are likely to file health insurance claims, it is wise to choose a deductible that you can easily pay from your pocket during medical emergencies. Remember that the insurer will pay for your medical bills only after you have paid the deductible amount.

Impact of deductibles on health insurance coverage

Deductibles can impact your health insurance coverage in certain ways. As stated earlier, deductibles reduce policy premiums by a significant amount. Therefore, with a deductible in place, you can choose a higher coverage at affordable rates. If there is a medical emergency and you have to opt for an expensive procedure, having high health insurance coverage can reduce your financial liabilities. This clause also helps people with limited income to choose decent health insurance coverage without fretting about paying high premiums.

Common misconceptions about deductibles

The following are some common myths or misconceptions about deductibles in health insurance:

1. High deductibles will reduce your financial liabilities

Fact:

Choosing high health insurance deductibles will reduce policy premiums but increase your financial liabilities during medical procedures. For example, suppose the deductible on your health plan is INR 1 lakh, and your medical bills add up to INR 1,50,000. In this case, you must pay INR 1 lakh from your pocket, and the insurer will pay only INR 50,000.

2. If you are young and healthy, you can choose high health insurance deductibles

Fact:

Health issues are increasing among people of all ages. Therefore, even if you are young and healthy, you can meet with an accident or have any other medical emergency. Therefore, it is advisable not to choose a very high health insurance deductible at any point.

3. A deductible is applicable to every health insurance claim

Fact:

A health insurance deductible is fixed for a policy term, so it may not be applicable to all claims you make during the policy period. For example, you raise a claim of INR 2 lakh during a policy period. The deductible of your health plan is INR 50,000. In this case, you will use the entire deductible amount in this claim. If you happen to raise another claim during the same policy period, you are not liable to pay the deductible amount again.

Tips for managing deductibles

If you are planning to opt for health insurance with the deductible clause, the following tips can help you manage deductibles efficiently —

1. Choose the right deductible amount:

When choosing a deductible for your health plan, keep your financial resources in mind and select a payable amount. Selecting a high deductible will reduce policy premiums but increase your out-of-pocket expenses during medical exigencies.

2. Pay small bills from your pocket:

If your hospital bills are less than or a little more than the deductible amount, pay them from your pocket. If you don’t make any claims during a policy period, you can earn a no-claim bonus in the form of reduced policy premiums or increased sum insured. This is particularly important if you have accumulated no-claim bonuses for the previous years and you don’t want to lose them.

3. Use deductibles wisely:

If you are suffering from a health condition that may require multiple hospitalisations during a policy term, you can raise a claim after hospitalisation and use the deductible amount. Once the deductible is over, the insurer will take care of your hospital bills during the policy period and save you from financial worries.

FAQs

1. Should I opt for higher deductibles to reduce health insurance premiums?

If you are young and in good health, you can choose a high deductible with your health plan to reduce policy premiums. However, if you suffer from a medical condition that may require frequent hospitalisation and care, you must do your calculations and choose deductibles wisely.

2. Who should choose low deductibles in health insurance?

Individuals likely to raise health insurance claims often should choose low deductibles. Once the deductible amount gets used up, they can rely on their insurer to cover their medical bills.

3. What if I am not able to pay the required deductible amount?

If you file a health insurance claim but are unable to pay the required deductible amount, the insurer will not settle your claim. Therefore, it is important to pay the deductible amount for claim settlement.

4. What are the benefits of deductibles in health insurance?

Deductibles help reduce policy premiums and make health insurance more affordable. This health insurance clause also prevents policyholders from filing small and fraudulent claims.

5. What are the disadvantages of health insurance deductibles?

Deductibles can create financial strain for policyholders. Insurance companies settle health insurance claims only after the deductible is met. Therefore, if a policyholder fails to pay the deductible amount, the insurer will reject his/her claim.

Conclusion

We hope you have understood what are deductibles in health insurance. Opting for a high deductible will reduce your premium, but there will be more out-of-pocket expenses. Health insurance policies with high deductibles are recommended if you don't have any chronic illness or do not require much medical attention. Those with chronic illnesses should opt for a low deductible so that insurance takes care of most of the expenses. While choosing a deductible, consider your health condition, age, frequency of filing claims, etc. Premiums should not be the sole deciding factor.

Disclaimer: The above information is for illustrative purposes only. For more details, please refer to the policy wordings and prospectus before concluding the sales.

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