It is likely that when browsing for insurance, you have stumbled upon the term ‘deductible’. What is a deductible and what are its implications if applied to your insurance policy? If these are questions you would like answered, this post is for you.
Let’s explore how deductibles work in different insurance plans. It’s important to note that not all expenses are subject to deductibles. Certain preventive care services, for instance, may be exempt from deductible requirements, depending on the insurance plan.
By understanding how deductibles function and considering factors such as your budget, health care needs, and risk tolerance, you can make informed decisions when selecting insurance plans.
What is a deductible?
Deductible refers to a fixed amount applied to an insurance contract. It specifies a monetary limit. So, let’s say your deductible is Rs 5,000 and the hospital bill is Rs 15,000. Then, the insurer will pay only the amount in excess i.e., Rs 10,000 in this case. It is a fixed amount and is generally applied in the case of health and motor insurance policies.
Whether it’s auto, health, or home insurance, understanding deductibles is crucial. A deductible is the amount you pay before your insurance company covers a claim. Types like high deductibles offer lower premiums but require you to pay more out-of-pocket. Tax deductibles may apply to medical expenses. Remember, the deductible is the total amount you must pay before the insurer pays the claim. Higher deductibles often result in higher premiums.
Types of deductibles
In motor policies, there are two types of deductibles at work.
A voluntary deductible, also known as excess, is one that the insured chooses. The one that an insurer imposes is called a compulsory deductible. The latter is generally an outcome of regulations. Insurers do not apply these deductibles based on their discretion. However, the voluntary deductible is something you can select to control your costs. Also, voluntary deductible in motor insurance is applicable only to the own-damage part of motor insurance and not the third-party liability part.
A deductible is also applied in group/individual health policies and top-up health plans. Can apply it either per treatment, per year, or per life.
However, health insurance providers usually apply a co-pay clause (see What Is Co-Pay?) with health insurance.
Additional read: How satisfied are customers with their health insurance
Whether it’s auto, health, or home insurance, understanding deductibles is crucial. A deductible is the amount you pay before your insurance company covers a claim. Types like high deductibles offer lower premiums but require you to pay more out-of-pocket. Tax deductibles may apply to medical expenses. Remember, the deductible is the total amount you must pay before the insurer pays the claim. Higher deductibles often result in higher premiums. Let’s explore how deductibles work in different insurance plans. It’s important to note that not all expenses are subject to deductibles. Certain preventive care services, for instance, may be exempt from deductible requirements, depending on the insurance plan.
By understanding how deductibles function and considering factors such as your budget, health care needs, and risk tolerance, you can make informed decisions when selecting insurance plans.
Case study: Impact on individual insurance premium
Suman decided to buy health insurance coverage for herself. She approached a health insurance provider to get a quote for a total cover of Rs 2,00,000. Suman did not have any significant health issues, so she was not keen on spending too much money on the premium. The insurance agent advised Suman to buy health insurance with a deductible to get a discount on the premium.
The insurer set the amount at Rs 10,000 per event. This reduced the premium by about 40%, which was a significant amount. Suman is happy with the outcome because she can easily pay the amount of Rs 10,000 if needed. But she also knows that the insurance will pay for all expenses over that amount.
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