What Is Deductible in Health Insurance & Why It Matters

One of the reasons why your health insurance provider does not cover the entire bill amount is due to ‘deductibles’. It is a fixed amount that the policyholder must cover before the insurer steps in to cover the remainder. It could be better explained as your commitment towards the medical expenses.

It is critical for you to understand the concept of deductibles before selecting it in your health insurance policy. Let's understand how deductibles work, their impact on your premium and policy, and how to select a deductible while considering its effect on hospital expenses.

What Is Deductible in Health Insurance?

As explained before, a deductible is a mandatory deduction that you agree to pay out of pocket before your health insurance kicks in. It can also be described as a threshold amount that you must pay out of pocket, without which the insurer would not contribute.

Let us understand it with an example. Suppose your policy has a deductible of ₹20,000. If you’re hospitalised and the total bill is ₹80,000, you’ll first pay ₹20,000, and then your insurer will cover the remaining ₹60,000, subject to other policy terms.

The concept differs from co-payment, where you are required to pay a fixed percentage of each claim made. Here, a deductible is a fixed amount that is applied once per policy year or claim, depending on the policy.

Types of Deductibles

Here are the categories of deductibles you should be aware of before buying a health insurance:

The Importance of Deductibles in Health Insurance

Deductibles are often ignored, and people are more concerned about the total coverage, the number of network hospitals, and other benefits. However, despite being a minor clause in the health insurance policy, these deductibles play a big role in how much you pay, both in premiums and out-of-pocket expenses.

Pros and Cons of Choosing a Higher Deductible

The decision to choose a higher deductible depends on your goals and personal financial planning. However, it is critical to take into account the pros and cons of a higher deductible before making a decision:

Pros

• Lower Premiums: Reduces your annual insurance cost significantly.
• Ideal for Healthy Individuals: Great if you rarely need medical care.
• Encourages Smart Planning: Helps in long-term budgeting.
• Customisation Flexibility: It lets you tweak your policy based on your financial comfort.

Cons

• High Out-of-Pocket Cost: You must pay more during a medical emergency.
• Not Suitable for Frequent Claims: Becomes expensive if hospital visits are common.
• Unexpected Financial Stress: Can strain savings during critical illnesses.
• Limited Benefit for Small Claims: You may end up paying the entire amount for minor treatments.

Deciding the Correct Deductible for a Health Insurance Policy

It can be a challenging situation for a policyholder to determine the amount of the deductible. Every policyholder would want to get the best deal on premiums when buying or renewing health insurance. At the same time, it is crucial to ensure that you do not incur a significant out-of-pocket expense during hospitalization.

Here is how you can decide the correct deductible for your health insurance policy:

• Evaluate your financial cushion to determine if you are comfortable paying a substantial amount during hospitalization.

• Take a brief assessment of your medical history, hospitalization etc.

• Evaluate the employer health insurance coverage.

• Consider the total number of dependents on you.

• Use premium calculators, such as the Upstox calculator, to make an informed decision

FAQs

What is a deductible in health insurance?

A deductible is the fixed amount you pay out-of-pocket for medical expenses before your insurance company starts covering the remaining cost.

Is a higher deductible better?

It can lower your premium, but you'll have to pay more during a claim. It is best suited for healthy individuals with a financial backup.

Does the deductible apply to every claim?

It depends on the type: the per-claim deductible applies to each individual claim, while the annual deductible applies once per year.

Can I change my deductible amount later?

Typically, you can only change it at the time of policy renewal, not mid-term.

Is deductible the same as co-pay?

No. A deductible is a fixed amount, while a co-pay is a percentage of the claim that you pay each time.