Deductible in Health Insurance

What is Deductible in Health Insurance with Example?

Health insurance deductible refers to the share of hospitalization/medical expenses that you need to pay from your pockets before filing a claim. It is the money you must pay for healthcare services before your insurance coverage kicks in. Once you have paid the deductible, your insurance company will pay the claim amount to the hospital.

How Do Deductibles Work in Health Insurance?

Let's understand how deductibles work in health insurance with the help of the following example.

Suppose you have a health insurance policy of ₹10 lakh with a deductible amount of ₹50,000. So, if you file a claim of ₹4 lakh, then your health insurance company is only liable to pay ₹3.5 lakh, i.e. ₹4,00,000 - ₹50,000. However, the insurer will pay this claim amount only after you have paid ₹50,000 to the hospital as a deductible.

In other words, your health insurance provider is only liable to pay for medical expenses that exceed the deductible amount. If your claim amount is lower than your deductible amount, your insurer will reject your claim.

For example, suppose you file a claim of ₹40,000 under your ₹10 lakh mediclaim policy with a deductible amount of ₹50,000. In this case, your insurer will reject your claim, as they are not bound to pay for claims below the deductible limit.

Need for Deductibles in Health Insurance

Deductibles have been introduced by health insurance companies to discourage policyholders from filing small claims. It makes you responsible and encourages you to register only genuine claims, as you know in advance that you will need to pay a portion of the claim amount. Thus, deductibles minimize the frequency of claims and prevent scams or fraudulent claims.

Since deductibles prevent you from raising a claim every time you get sick, it helps you to maintain your No Claim Bonus (NCB). The NCB is granted as a reward by insurance companies for not filing any claims in the previous year. You can use NCB to enhance your policy sum insured without paying any additional premium.

Types of Deductibles in Health Insurance

There are two types of deductibles available under health insurance plans in India:

1. Compulsory Deductibles

   A compulsory deductible is a mandatory deductible amount fixed by the insurance company. The amount is mandatory for the policyholder to pay at the time of claim settlement and cannot be changed/removed. As a result, the premium amount is not reduced due to deductible and remains the same.

2. Voluntary Deductibles

   A voluntary deductible is the amount that policyholders choose to pay on their own at the time of claim settlement. They can choose the deductible amount as per their financial ability and the sum insured. Since the policyholder voluntarily agrees to pay a portion of the medical/hospitalization expenses, the insurer rewards them by offering a discount on premiums. The higher is the deductible amount, the lower will be the premium.

Why Should You Opt for Deductibles in Health Insurance?

Take a look at a few reasons why you must opt for a deductible in your medical insurance policy:

• Lower Premiums - Opting for a deductible helps to lower your health insurance premiums. This happens because the insurer rewards you for sharing the medical expenditures and reducing their liability. The higher is your deductible amount, the lower will be the premium.
• No Claim Bonus Protection - Choosing a deductible can help you build your No Claim Bonus as you will refrain from filing claims for small expenditures. As major medical expenses do not occur often, you may not file any claims during your policy tenure, leading to the NCB reward.
• Safeguards Coverage Amount - Deductibles can also help to safeguard your sum insured for actual time of need. As you will not raise claims frequently, your sum insured will remain intact and can come in handy when you actually need it for a major illness or hospitalization.

How to Choose a Deductible Under Your Health Insurance Policy?

Check out some of the factors that must be considered while choosing a deductible in your health insurance policy:

• Pre-existing Diseases - If you suffer from a pre-existing disease (PED), you should not opt for a deductible. This is because pre-existing diseases may involve frequent claims, and you may end up paying a deductible every time.
• Current Health Status - If you are healthy and do not suffer from chronic diseases, then you must opt for a deductible in your policy. This is because you will not file claims frequently but can lower your health insurance premiums by adding deductibles.
• Age - If you are a young adult in your 20s and early 30s, you should opt for deductibles in your mediclaim policy. This is because younger people are less prone to age-related health issues and will not file claims as frequently as elderly parents and senior citizens. But by adding deductibles to your policy, you will be able to enjoy lower premiums.
• Lifestyle Habits - If you have poor lifestyle habits, opting for deductibles is not a good idea. This is because people who are chain smokers, heavy drinkers or lead a sedentary lifestyle are more prone to lifestyle diseases like diabetes, obesity, hypertension, etc. If you end up getting diagnosed with a lifestyle disease, you may raise claims frequently and pay a deductible every time.
• Medical History - If you or your family has a medical history of lifestyle or chronic diseases, you should not opt for a deductible under your health policy. This is because you will be more vulnerable to such diseases than people without any medical history. If you are diagnosed with a disease, you may file frequent claims and pay deductibles.

What is the Difference between Deductible vs Co-payment in Health Insurance?

Check out the key differences between a deductible and a co-payment: