Understanding Co-pay and Deductibles in Insurance Policies

With the growing awareness, many people have started buying health insurance, accident insurance, and overseas travel insurance, among other products.

However, not many people understand the fine print, especially when it comes to restrictive conditions. Exceptions and limitations are well defined, and by now most people have a clear understanding of most of them.

But as insurance companies rely more on co-pay and deductibles, insurance buyers should be doubly careful.

A copay clause is an agreement whereby insurance buyers agree to pay part of a claim. Usually expressed as a percentage.

For example, if the hospitalization requirement is Rs 1 lakh and there is a 10% co-payment clause, then the insurer is expected to pay Rs 10,000. The rest is paid by the insurer.

In India, co-payment is also called co-insurance. For example, New India Assurance Company’s Senior Citizen Mediclaim Policy has a 10% co-payment rule.

The copay may apply to all hospitalizations under the policy. In some cases, the insurer may apply it only to out-of-network hospitals or to hospitals located outside the insured’s hometown or state, or to the treatment of pre-existing conditions.

For example, the Bajaj Allianz Health Guard policy designates 8 major cities as Zone A and the rest of India as Zone B. Insurers paying premiums in Zone B and receiving treatment in a Zone

A city will be required to pay a surcharge of 20% of the allowable claim amount. This does not apply to hospitalization due to an accident.

The SBI General Insurance Company health plan requires the insured to share 10% of the allowable claim for hospitalization at an out-of-network hospital.

It is important to note that other things remain the same: Coverage with a copay clause will charge a lower premium than coverage without a copay clause.

The deductible is the amount that the policyholder agrees to pay in the event of a claim. If the policy states Rs 5,000 as deductible and the claim is Rs 1 million, then the insured is expected to pay Rs 5,000 and then the insurer will pay Rs 95,000. As a general rule, other things being equal, the higher the deductible, the lower the premium.

Typically, auto and international travel insurance include deductibles. For example, TATA AIG General Insurance’s Travel Guard policy, a silver plan for a person aged 0.6 to 70 and an insurance amount of $50,000 for medical expenses in the event of an accident and illness, will be subject to a deductible of 100 USD.

Replenishment health insurance plans are deductible. The supplementary health insurance plan comes into effect after the basic sum insured is depleted.

For example, ICICI Lombard General Insurance Company under the Health Booster plan offers to pay for claims over 3 lakhs. And it offers a guaranteed amount of 5 to 50 lakhs.

Simply put, if you have a health insurance policy with a guaranteed amount of 3 lakh, and you buy this above-mentioned refill, then in the case of an 8 lakh hospitalization, these two policies together can cover the entire claim.

It offers three deduction options – 3 lakh, 4 lakh and 5 lakh rupees.

You can choose the sum insured and threshold limits (deductible) depending on your needs. Again, the higher the deductible limit you choose, the lower the premium.

The difference between a copay and a deductible is that a deductible means the amount you must pay first when a claim arises, while a copay clause splits the claim into two parts according to the predetermined arrangement described above.

Co-pay and deductibles are designed to discourage insured people from making small claims or too many claims.