Deductible In Insurance: Definition, Types & Factors Affect Deductible Amount

A deductible in insurance refers to the amount of money that the insured individual must pay out of pocket before their insurance company will start to cover any expenses. There are different types of deductibles such as fixed, percentage-based, and annual deductibles. Factors that can affect the deductible amount include the type of coverage, age, and history of the insured individual.

What Is Deductible In Insurance With Example?

A deductible in insurance is the amount that an insured individual must pay out of pocket before their insurance coverage starts. In India, deductibles are commonly seen in health insurance policies, where the insured individual is required to pay a specified amount of their medical expenses before the insurance company starts covering the costs. 

For Example: If a health insurance policy has a deductible of Rs. 10,000, the insured individual would have to pay Rs. 10,000 towards their medical expenses before the insurance company starts reimbursing any remaining costs. Deductibles help to keep insurance premiums lower and to discourage unnecessary claims.

What Is Deductible In Health Insurance?

The deductible in health insurance is the amount that the policyholder must pay out of their pocket before the insurance company starts to cover the expenses. In India, health insurance policies often come with a deductible clause, which is typically in the range of Rs. 1,000 to Rs. 10,000, depending on the policy and the insurance provider.

For Example: If a health insurance policy has a deductible of Rs. 5,000 and the policyholder incurs medical expenses amounting to Rs. 20,000, the insurance company will only pay Rs. 15,000 (Rs. 20,000 - Rs. 5,000) after the policyholder has paid the deductible amount of Rs. 5,000.

Types Of Insurance Deductibles

In India, several types of insurance deductibles are commonly used in various types of insurance policies such as fixed deductible, percentage deductible, annual deductible, and per occurrence deductible.

Common types of insurance deductibles in India include:

• Fixed Deductible: In this type of deductible, a fixed amount is specified in the insurance policy which the policyholder must pay before the insurance company starts covering the remaining expenses.

• Percentage Deductible: In this type of deductible, a percentage of the total claim amount is specified which the policyholder must pay before the insurance company starts covering the remaining expenses.

• Annual Deductible: This type of deductible applies over one year, meaning that the policyholder must pay the deductible amount each year before the insurance company starts covering expenses.

• Per Occurrence Deductible: In this type of deductible, the policyholder must pay a specified amount for each separate occurrence of a claim before the insurance company starts covering the expenses.

Types Of Deductibles In Health Insurance

There are 5 types of deductibles in health insurance which include compulsory deductible, voluntary deductible, cumulative deductible, comprehensive deductible, and non-comprehensive deductible.

1. Compulsory Deductible

A compulsory deductible is a fixed amount that a policyholder must pay out of pocket before the insurance company starts covering the expenses. It is a form of cost-sharing where the insured bears a certain portion of the claim amount.

As per the Insurance Regulatory and Development Authority of India (IRDAI), health insurance policies in India may have compulsory deductibles ranging from Rs. 1,000 to Rs. 20,000. The amount of the deductible varies based on the type of policy, sum insured, and other factors.

For Example: If a health insurance policy has a compulsory deductible of Rs. 5,000 and a claim amount of Rs. 50,000 is submitted, the policyholder would have to pay Rs. 5,000 out of pocket, and the insurance company would cover the remaining Rs. 45,000.

2. Voluntary Deductible

A voluntary deductible is an amount that the policyholder agrees to pay out of their pocket before the insurance company starts covering the remaining expenses. Opting for a voluntary deductible in health insurance can lower the premium amount that the policyholder has to pay.

In India, health insurance providers offer the option of choosing a voluntary deductible along with the standard deductible and co-payment options. The voluntary deductible amount can range from Rs. 1,000 to Rs. 50,000 or even higher, depending on the insurance provider and the type of health insurance plan.

For Example: If a policyholder chooses a voluntary deductible of Rs. 5,000 and incurs a claim of Rs. 20,000, they will have to pay Rs. 5,000 out of their pocket, and the insurance company will cover the remaining Rs. 15,000. By opting for a voluntary deductible, the policyholder can lower their premium amount, as the insurance company's risk is reduced.

3. Cumulative Deductible

A cumulative deductible in health insurance refers to the total amount of out-of-pocket expenses that a policyholder is required to pay before the insurance company starts covering the costs. Once the cumulative deductible is met, the insurance company will typically start paying a portion or all of the insured person's healthcare expenses.

In India, health insurance plans may have a cumulative deductible clause that sets a limit on the total amount of deductibles that need to be paid before the insurance coverage kicks in. The deductible amount can vary depending on the type of health insurance plan chosen and the insurance company offering the policy.

For Example: A health insurance plan with a cumulative deductible of Rs. 10,000 would mean that the insured person would need to pay this amount out of pocket before the insurance company starts covering any medical expenses. Once the cumulative deductible is met, the insurance company would typically start reimbursing or directly paying for the covered healthcare services.

4. Comprehensive Deductible

Comprehensive deductible in health insurance refers to the amount of money that an individual needs to pay out of pocket before their insurance coverage starts. In India, comprehensive health insurance plans typically have a deductible ranging from Rs. 5000 to Rs. 50,000. 

The deductible amount can vary depending on the type of coverage and the insurance provider. Higher deductible plans usually have lower premiums, while lower deductible plans have higher premiums. 

5. Non-Comprehensive Deductible

The non-comprehensive deductible is a fixed amount that a policyholder must pay out of pocket before their insurance coverage starts. This deductible is applicable on non-comprehensive health insurance policies, which typically cover only specific medical expenses such as hospitalization costs or a particular illness.

The exact amount of the deductible can vary depending on the insurance provider and the specific policy chosen by the individual. Some health insurance policies may have a higher deductible amount, while others may have a lower deductible amount.

For Example: A health insurance policy with a non-comprehensive deductible of INR 5,000 means that the policyholder must pay the first INR 5,000 of their medical expenses out of pocket before the insurance coverage starts to cover the remaining costs.

Factors Affect The Deductible Amount In Health Insurance Policy

Some factors affect the deductible amount in health insurance policies such as age, medical history, coverage type, insurance provider, deductible chosen by the insured, and family size.

• Age: Younger individuals usually have lower deductibles compared to older individuals. This is because older individuals are more likely to require medical treatment, leading to a higher deductible to be set by the insurance provider.

• Medical history: Individuals with pre-existing medical conditions may be subject to higher deductibles in their health insurance policy. This is because individuals with pre-existing conditions are more likely to require medical treatment, leading to higher costs for the insurance provider.

• Coverage type: The type of coverage selected by the insured can affect the deductible amount. For example, individuals opting for a high-deductible health insurance plan may have a lower monthly premium but a higher out-of-pocket deductible before the insurance provider starts covering the costs.

• Insurance provider: Different insurance providers may have different policies regarding deductibles. Some insurance providers may offer lower deductibles but higher monthly premiums, while others may offer higher deductibles with lower monthly premiums.

• Deductible chosen by the insured: In some cases, the deductible amount can be chosen by the insured when selecting a health insurance policy. Choosing a higher deductible can lead to lower monthly premiums while choosing a lower deductible can lead to higher monthly premiums.

• Family size: Health insurance policies covering a larger number of family members may have higher deductibles compared to policies covering only one individual. This is because larger families are more likely to require medical treatment, leading to higher costs for the insurance provider.

Why Should You Opt For An Insurance Deductible?

In India, opting for an insurance deductible can be beneficial for several reasons such as cost savings, customization, quick settlement, and long-term savings.

• Cost savings: By choosing a higher deductible, you can lower your insurance premium. This can lead to significant cost savings in the long time horizon.

• Customization: Deductibles allow you to customize your insurance policy based on your individual needs and budget. You can select a deductible amount that you are comfortable with, balancing the trade-off between out-of-pocket costs and monthly premiums.

• Quick settlement: With a deductible, insurance companies may process claims more fast, as the policyholder is responsible for a portion of the claim amount. This can help streamline the claims process and ensure quicker resolution in case of an accident.

• Long-term savings: By opting for a deductible, you may benefit from long-term savings on your insurance premiums. As you continue to maintain a clean record and avoid making claims, your premiums may decrease over time, resulting in overall cost savings.

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Conclusion 

In conclusion, the deductible in insurance is an important factor to consider when choosing a policy. It is the amount that the policyholder must pay out of pocket before their insurance coverage starts. A higher deductible can lower monthly premiums, but it also means more financial responsibility in the event of a claim. You can contact “Our Experts” which will help you to choose the best health insurance plan with a deductible option.