Health insurance basics: Understanding deductibles

Naval Goes demystifies an important insurance jargon and explains its pros and cons

Illustration: Dominic Xavier/Rediff.com

Deductibles are one of the many jargons that make policy shopping often difficult. People find themselves in a fix wondering whether they ought to go for high or low deductibles? Not anymore!

This information will help you make an informed decision.

Let us understand what these terms mean and then decide which one is better for you. 

What are deductibles?

Deductibles are the amount that are fixed and paid to an insurance company from your own pocket before the insurance company starts covering your medical costs.

Health insurance plans balance between premiums and deductibles.

The thumb rule is: higher the insurance premium you agree to pay every month/year, the lesser will be the deductible, which is the cost you bear before insurance benefits start.

There are two types of deductibles. 

High deductible plans

The primary advantage of such plans is that the upfront premium amount is lower.

One will have to achieve the fixed limit of deductible before they start to reap the benefits.

A high deductible plan is designed to provide cover against emergencies and deadly diseases.

However, some of these plans offer only limited benefits like low co-pay [the insured pays a part (say, 20 per cent) of the total medical expenses fixed by mutual agreement between the insured and the insurance company at the time of purchasing the health insurance] when visiting doctor or buying prescribed medicines before the level of deductible is achieved. 

Low deductible plans

Under these plans, the premium amount will be higher but the benefits kick in way earlier than the high deductible plans.

You will be able to use the benefits when visiting a doctor or buying prescribed medicines.

It is best for those who require medical services rather frequently.

With a low deductible plan, you might have to pay more in premiums but lesser from your pocket when availing medical services. 

Which one is best for you?

1. Assess your health care expenses

• Calculating the amount of healthcare expenditure is the first thing you must do in order to know which plan would suit your needs.
• Consider your medical history
• Draw out a comparison between the amounts you spend on premiums with your out-of-pocket expenses.
• If out-of-pocket expenses are more, than a low deductible plan is the one you should opt for. 

2. Evaluate your health

Your current medical condition also goes a long way in helping you decide which plan you should invest in. If you're young with no major health problems, then you can go for a high deductible health plan.

On the other hand, if you're someone who requires frequent medical visits, then a low deductible health plan should be just fine for you. 

Now, isn't it quite simple for you to choose between a high or low deductible plan?

Naval Goel is CEO and Founder, PolicyX.com