Group Health Insurance

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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.

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 of the deductible, i.e., Rs 10,000 in this case. The deductible is a fixed amount and is generally applied in the case of health and motor insurance policies.

Types of deductibles

In motor policies, there are two types of deductibles at work.

Voluntary deductible, also known as excess, is one that the insured chooses. A deductible 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. It can be applied 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.

Case study: Deductible lowers individual insurance premium

Suman decided to buy health insurance cover 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 a health insurance with a deductible to get a discount on the premium.

The insurer set the deductible 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 deductible 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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