Explainer | What are co-pay and deductibles in insurance policies?

Thanks to the rising awareness, many individuals have started buying health insurance, personal accident covers and overseas travel insurance, among other products. However, not many understand the fine print, especially when it comes to restrictive conditions. Exclusions and caps are clearly defined and by now, most individuals have a fair idea of most of them. But as insurance companies rely more on co-pay clauses and deductibles, insurance buyers have to be doubly careful.

Co-pay clause is an arrangement where insurance buyers agree to pay a portion of the claim raised. It is generally expressed in percentage terms. For example, if the hospitalisation claim is Rs 1 lakh and there is co-pay clause of 10%, then the policy holder is expected to pay Rs 10,000. Rest is paid by insurer.

In India, co-pay is also termed as co-insurance. For example, Senior Citizens Mediclaim Policy of The New India Assurance Company has a 10% co-payment rule.

Co-pay may apply to all hospitalisations under a policy. In some cases, the insurer may choose to apply it to only non-network hospitals or for hospitals situated outside the home city or home state of the policyholder or treatment of pre-existing diseases.

For example, Bajaj Allianz Health Guard policy defines 8 major cities as Zone A and rest of India as Zone B. Policyholders paying Zone B premium rates and availing treatment in Zone A city will have to pay 20% co-payment on admissible claim amount. This does not apply for hospitalisation arising out of accident.

SBI General Insurance Company’s Health Insurance plan expects policyholder to share 10% of admissible claim amount for hospitalisation in a non-network hospital.

An important point to note is other things remaining the same, an insurance cover with a co-payment clause will charge lower premium compared to an insurance cover without a co-payment clause.

Deductible is a sum an insured agrees to pay when the claim arises. If a policy mentions Rs 5,000 as deductible and the claim is of Rs 1 lakh, then the insured is expected to pay Rs 5,000 and then the insurer pays Rs 95,000. As a rule of thumb, other things remaining the same, higher the deductible amount, lower the premium.

Generally, motor insurance and overseas travel insurance covers come with deductibles. For example, on Travel Guard policy of TATA AIG General Insurance –silver plan for an individual aged between 0.6 to 70 years and sum assured of US dollar 50,000 for accidental and sickness medical expenses reimbursement cover, deductible of US dollar 100 will apply.

Health Insurance top-up plans come with a deductible threshold. Top-up health insurance plan kicks in after the basic sum insured is exhausted. For example, ICICI Lombard General Insurance Company, under Health Booster plan offer to pay claims above Rs 3 lakh. And it offers sum assured of Rs 5 lakh to 50 lakh.

To put it in simple terms, if you have a health insurance policy with sum assured of Rs 3 lakh and you buy this aforesaid top up, then in case of a hospitalisation costing Rs 8 lakh, these two policies together can pay for entire claim. It offers three deductible options – Rs 3, 4 and 5 lakh.

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

The difference between a co-pay and deductible is that the deductible connotes the amount you have to pay first when a claim arises whereas co-payment clause divides the claim in two parts as per the predetermined arrangement, explained above.