The GST rate cut in health and term insurance would have policyholders look forward to the premium renewal date for a change, to examine the cost savings. A 12-16 per cent savings is on the cards and this is appealing to prospective policyholders. The interest can be gauged from the brokers and aggregators who are reporting a surge in enquiries for insurance. If lower cost was a tailwind to insurance purchase, an option to further reduce premiums by another 10-20 per cent should appeal to even larger cohort of the under or the uninsured. Deductibles can be a handy tool to save on premiums but must be wielded by the right policyholder.
Why Consider
Here, we discuss the ideal condition to opt for it, and how it is different from Co-pay which is better avoided.
Health insurance is a necessary protection net for everyone. But the younger policyholders, with a statistically lower probability of needing medical care, can pad the premium costs with a deductible.
A deductible is a voluntary option (largely) that one can opt for. In this plan, the policyholder agrees to pay a fixed monetary amount before the claim is admitted by the insurer.
For instance, in a Rs. 5 lakh policy with a Rs. 25,000 deductible, when a claim is made for Rs. 2 lakh, the policyholder must pay the first Rs. 25,000 deductible to claim the remaining Rs. 1.75 lakh from insurance.
In return, the policyholder can get a lower premium every year to the tune of 15-20 per cent.
On the other hand, the insurer benefits more from qualitative improvement in underwriting than the savings on deductible payments.
The scope for fraudulent claims decreases as the need for upfront payment to make a claim deters such activity. The policyholder also ends up claiming only those instances where the claim size is substantially higher than the deductible.
Otherwise, they would risk upsetting the no claim bonus if such conditions exist.
This also reduces the claims that need to be processed, saving the administrative expenses.
The policyholder anticipating a lower frequency of making claims benefits from lower premi-ums while still staying in the safety net.
The insurer benefits from a responsible policyholder willing to have a little skin in the game.
Co-pay and Variations
The deductible can be aggregated annually or per claim. Between the two, the aggregate per year option fixes the amount of deductible per year and limits the out of pocket expense while per claim leaves the liability open ended.
The deductible discussed earlier is a voluntary deductible and not to be confused with compulsory deductible that some policies may impose on certain conditions. The compulsory deductible most likely will not have a bearing on the premiums. Co-pay is similar to a deductible but in one crucial aspect. It requires policyholders to meet a certain percentage (15-25 per cent) of the claim against a fixed amount required in a deductible.
This makes Co-pay a large liability if the claim amount exceeds a certain amount. Essentially, Co-pay can end up diluting the core premise of insurance by transferring a portion of the risk to the policyholder.
It is recommended to avoid a Co-pay policy unless that is the only option to afford a health insurance policy. This rings true for elderly health insurance policies where pure premiums (without Co-pay discount) exceed Rs. 60,000-75,000 per year for 60+ individuals.
This category most likely assumes Co-pay condition of 20 per cent considering the risk of insuring aged individuals.
Similar to compulsory deductible, even Co-pay can be incorporated into basic plans. As mentioned, elderly plans mostly incorporate 20 per cent Co-pay. Admission in non-network hospitals is also attracting a 20 per cent Co-pay. This is a recent phenomenon; policyholders must assess the network hospital availability in their regions.
