The thing that most affects a person with insurance is the sum they actually receive at the end of the day and the money they pay out of their own pockets. So it is important that you know how much of your bills the insurer will consider.
Insurance companies cover the risk but they also like to share the risk with the insured, especially when the risk is high. For instance, a senior citizen is at a much higher health risk than a young person. He is more likely to visit a hospital and avail healthcare. And for insurance companies risk sharing means cost sharing. In this context, two terms become crucial to understand: Co-payment and Deductibles.
Co-payment (Co-pay) implies that every time you make a claim you partially bear the expenses. It is a fixed percentage decided before the beginning of the policy period and remains the same throughout.To give an example, if you claim Rs. 10000 with 10% co-pay, you’ll pay Rs. 1000 and the insurance company will pay the rest Rs. 9000. You will find the co-payment clause in most of the policies that makes it mandatory for people above a certain age to share the claim amount as the insurers want to keep the premiums low and reasonable, and at the same time discourage them from making frequent minor claims.
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Deductible is another way of sharing the cost with the insured. It is a fixed amount that the insured party has to pay before the benefits of the insurance policy kick in. Simply speaking, If your deductible is Rs 50k, until you spend that much amount the insurance company won’t pay a dime. If you claim Rs 3 Lakh, you’ll pay Rs. 50k and the insurance company will take care of the rest. In case of motor insurance, if you’re willing to share more risk and opt for a higher deductible, the insurer will give you a discount on the premium.
Deductible can be calculated in two ways. Insurance companies may apply a fixed deductible to each and every claim made. The other way is calculate the aggregate deductible during the policy year. Let’s take an example. You make 3 claims during the year of Rs. 7k, 15k and 20k respectively, and your insurer applies a deductible of Rs. 10k for every claim. The following will happen:
First claim: The insurer will pay nothing. Zilch.
Second claim: You pay the deductible,the insurer will pay Rs. 5k.
Third claim: you pay the deductible, the insurer will pay Rs. 10k.
In summary, You pay Rs. 27k out of Rs. 42k claimed.
Let’s suppose the insurer calculates deductible as an aggregate amount of Rs. 20k and yet again, you claim thrice during the year.
First claim: You’ll pay everything.
Second claim: you’ll pay 13k and the insurer will share the rest. You see, you pay your aggregate deductible of 20k, 7k from first claim and 13k from second.
Third claim: You’ll pay nothing. The entire 20k is covered by the insurer.
You end up paying 20k out of 42k claimed.
The deductible can vary from plan to plan but on an average, aggregate deductible is found to be more cost-friendly for the consumer.
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