Health Insurance Deductibles: What Policyholders Should Know Before Choosing One

When buying health insurance, it is easy to focus on the premium amount and ignore what comes with it. Among the fine print, the "deductible", which refers to the amount you must pay before the insurer starts covering your medical bills, can quietly determine how useful your policy really is when you need it most.

Health insurance expert Avigyan Mitra, in a recent LinkedIn post, highlighted how a seemingly "cheaper" plan could end up being more expensive in the long run. He reviewed a family floater policy with a Rs 10 lakh sum insured and a Rs 1 lakh deductible, where the buyer was told it would save on premiums.

"That means you pay the first Rs 1 lakh of every claim out of pocket before coverage begins," he explained.

In simple terms, if your hospital bill is Rs 1.5 lakh, you pay Rs 1 lakh, and the insurer covers the rest. But if your bill is Rs 80,000, you pay the entire amount yourself with zero insurance benefit.

The Trade-Off Between Premium and Risk

Deductibles reduce premiums often by 15 to 25 per cent, depending on the amount chosen. But it is a trade-off between saving on premiums and risking higher out-of-pocket costs during medical emergencies.

Mitra points out that choosing the right deductible is not just about affordability. It depends on these factors as well:

• Age

• Medical history

• Hospitalisation risk

• And even liquidity

"Before recommending any deductible, a thorough risk assessment is mandatory," he said, noting that families should review at least three years of medical expenses and any planned procedures before deciding.

According to industry data cited by Mitra, the average health insurance claim in India is around Rs 81,000, and in metros like Delhi, it's about Rs 1,00,600 per claim. With a Rs 1 lakh deductible, most of these claims would fall entirely on the policyholder, defeating the very purpose of insurance.

The insurer's logic is simple: deductibles help reduce claim frequency by eliminating smaller claims. This further preserved the policyholder's No Claim Bonus (NCB), but that too comes at the cost of paying a significant amount from one's own pocket.

How can you ensure the right balance between deductibles and accurate coverage?

Experts say that keeping a voluntary deductible between Rs 25,000 and Rs 50,000 to get a reasonable premium benefit without excessive financial exposure would be a good choice.

Higher deductibles may only benefit and suit people who have good emergency savings and minimal health risks. It is also suitable for people who already have a base policy to cover smaller claims.

A key point to remember is that deductibles apply per claim, not per year. Therefore, each time one files for a claim, they end up paying the deductible amount before the insurer steps in.

The Bottom line

A deductible can make policy more affordable but it should not turn the insurance coverage useless at the moment of a medical crisis. One should consider if a slightly higher premium with a manageable deductible could work better than a cheaper plan that exposes gaps during emergencies.

In his post, Mitra reviewed that the recommendation for a Rs 1 lakh deductible looked more like commission-driven rather than client-centric." He advises to structure the policy so that it works for the policyholder, not just for the premium chart.