Having sufficient health insurance coverage is critical to ensure financial security for you and your family. Unfortunately, if you are looking for a high sum insured, especially to cover the elderly, the premiums can be quite expensive. Recently, my wife and I enrolled ourselves, and both our sets of parents in new health insurance policies and learned how deductibles can help reduce premiums by 50% or more.

Background

We are fortunate that our employers provide comprehensive health insurance coverage that covers not only us but our respective parents as well. However, we still wanted to buy independent health covers for two reasons: a) employment in the private sector is never guaranteed, and b) the employer cover was lower than what we were comfortable with. We were looking for an additional cover of at least ₹10 lakhs.

Sticker Price Shock

When we started researching insurance policies, we were shocked at how expensive the premiums were to cover our parents, who are in their 60s and 70s.

Policy Name Insured Age Sum Insured Annual Premium
Niva Bupa ReAssure 2.0 In 60s ₹10 lakhs ₹49,000
Niva Bupa Senior First In 70s ₹25 lakhs ₹160,000
HDFC Optima Secure In 30s
(for I and my wife)		 ₹20 lakhs

Enter Deductibles

What is a deductible?

Deductibles are best explained through an example. Consider this: let’s say your opt for a sum insured of ₹10 lakhs, with a ₹50,000 deductible. In the case of a claim, you need to pay the first ₹50,000, and the insurance company will pay the incremental amount above ₹50,000.

Most deductibles work on an annual aggregate basis, meaning it is based on your total claim amount in a year, not each individual claim. Once you have paid upto the deductible limit, your insurance covers the rest for that year.

Continuing with the same example, consider that your first claim in a year is for ₹30,000. As your deductible is ₹50,000, the insurance company wouldn’t pay anything for this claim. If you incur another claim in the same year, of say ₹90,000, you would have to pay another ₹20,000 but the remaining ₹70,000 will be paid by the insurance company.

Deductibles are thus different from co-pay schedules where the insurance company pays a fraction of all the claims. But this seeming downside, is exactly what allows deductibles to lower your premiums far more than co-pay clauses.

Benefits

Substantial reduction in premium

I will just let some examples show you the dramatic effect of deductibles in reducing the premiums:

Policy Name Insured Age Sum Insured Annual Premium With 20% Co-Pay With Deductible)
Niva Bupa ReAssure 2.0 In 60s ₹10 lakhs ₹49,000 ₹27,000
(₹1 lakh deductible)
Niva Bupa Senior First In 70s ₹25 lakhs ₹160,000 ₹120,000 ₹27,000
(₹5 lakh deductible)
HDFC Optima Secure In 30s ₹20 lakhs N/A ₹12,500
(₹1 lakh deductible)

While opting for a co-pay clause helps with lowering the premiums, the difference is not much. In my opinion, co-pays are a poor choice since you have to pay high yearly premiums plus more out-of-pocket when you make a claim.

Pairs well with other comprehensive covers

At first, agreeing to pay the first few lakhs of a claim before insurance kicks in might sound absurd. However, you often don’t have to foot the entire deductible amount yourself.

If you have another comprehensive insurance policy, including a corporate cover, you can use that first. Any amount paid out by your other insurance policies would count toward meeting the deductible limit. Once the claims exceeds what your other policies cover, the policy with the deductible would kick in, but by that point you would have likely already met the total deductible amount for the year through the other policies.

For instance, I have opted for a ₹5 lakh deductible in my father’s new policy. In case he gets hospitalised and incurs a claim worth ₹10 lakhs, I expect my corporate policy to cover ₹7 lakhs and Niva Bupa to cover the remaining ₹3 lakhs. I should not need to pay anything towards the ₹5 lakh deductible.

In a situation where either I or my wife lose our jobs, or end up working for companies that do not provide a comprehensive corporate cover, we aim to rely on our savings to cover the deductible. We are comfortable taking that risk, in exchange for much lower premiums.

Options available

We found that each company typically offers only one or two plans with a deductible option. A few good policies that we found include Senior First and ReAssure 2.0 from Niva Bupa, and Optima Secure from HDFC.

You don’t have fine-grained control over the deductible amount either. Optima Secure has only three options for deductible amounts: ₹25K, ₹50K, and ₹1 lakh, while Niva Bupa Senior First offers only one option: 20% of the Sum Insured.

You might wonder why insurance companies offer lower premiums when opting for deductibles. The simple answer is that most insurance claims are relatively small in amount. If you opt for a high deductible, the chances become quite low that the insurance company would need to cover a large part of the bill. Since the company’s risk goes down, so does your premium.

If you’re considering buying health insurance, give the deductible option a serious consideration, especially if you are covered under a corporate policy. You might be able to save a lot of money.