Deductible in Health Insurance

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What is Deductible in Health Insurance?

A deductible is the amount of money that policyholders must pay toward their medical expenses before the insurance coverage begins. The insurance company starts paying for your expenses only after the deductible limit is reached. Expenses up to the deductible limit will not be covered by the insurer.
The deductible amount depends on the health insurance plan and the premium payable.
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Understanding Deductible in Health Insurance With an Example

The deductible meaning can be easily understood from the following example.
Let’s assume that your health insurance plan has an annual deductible limit of AED 5,000. Now two situations can arise as follows:

Situation 1

Your claim does not exceed AED 5,000 The insurer does not pay any amount toward your claim. You have to pay the medical bills out of your pocket till you reach the annual deductible limit.

Situation 2

The claim exceeds AED 5,000. Let’s assume that it is AED 10,000. You first pay the expenses up to the deductible limit of AED 5,000. The balance of AED 5,000 will be paid by the insurer.

Note: The insurance deductible is not applicable on every claim. It is an annual limit for the entire policy year. In the above example, once you reach the deductible of AED 5,000 for the year, the insurance coverage begins.

Importance of Deductibles in Health Insurance

The following points explain in detail the importance of deductibles in health insurance.

Prevents Unnecessary Claims

As policyholders need to pay the expenses till they reach the deductible limit, they are more careful and responsible while raising claims. They do not approach the insurer with frequent or minor claims.

Reduced Premium Payable

Deductibles lower the liability of the insurer in the event of claims. So the policyholders benefit by paying relatively lower premiums.

Improved Claims Settlement

Insurance deductibles tend to significantly reduce the number of claims. It improves the claims settlement ratio for the insurer, and the policyholders have a better chance of getting the no-claim bonus benefit.

How Does the Insurance Deductible Work?

A deductible is one of the standard cost-sharing features in health insurance. The insurance coverage begins only after you pay this set amount. A higher deductible lowers the premium payable and vice versa.
If your health insurance plan has a deductible of AED 5,000, the insurer does not pay for your medical expenses till this limit is reached. Medical bills below this amount have to be paid from your pocket. This limit is applicable for the entire policy year and not on every claim.

Why Do Insurance Policies Have Deductibles?

Deductibles in health insurance prevent policyholders from raising frequent and minor claims because they have insurance coverage. The insurer starts covering the expenses only after the insured reaches the deductible limit. The unnecessary claims can be minimized, and only the rightful claims can be covered by insurers.

There are two main reasons why most insurance policies have deductibles:

Moral Hazards

Deductibles help insurers to deal with the risk of moral hazards. Some policyholders may not act in good faith and a responsible manner when they do not have to face any financial consequences of their actions.

Financial Protection

Large number of claims in a short period can threaten the financial stability of the insurance company. Deductibles can protect the insurer against catastrophic losses. It aligns the interests of the insurer and the insured.

What is a Good Deductible for Health Insurance?

It essentially depends on your health condition and budget. If you are young and healthy, you may not need regular healthcare services. But you do need insurance coverage for medical emergencies like accidents. You can choose a higher deductible plan with a lower premium.
You can also choose a higher deductible plan if you cannot afford to pay higher premiums every year. But if you are old or suffer from chronic illnesses, a lower deductible plan is recommended to get the optimal benefits of health insurance.

Frequently Asked Questions on Deductibles in Health Insurance

It is the policyholder who has to pay the deductible in health insurance policies. The insurance company starts paying the expenses only after the deductible limit is reached.

Unless you pay the deductible in health insurance, the insurer will not settle your claim. Once the deductible limit is reached, the insurer steps in and starts paying your medical bills.

A low deductible is preferred if you expect frequent medical treatments or you feel that you cannot afford high medical expenses out of your pocket.

An insurance deductible tends to reduce the premium payable every year. Minor expenses such as doctor’s consultations and pharmacy bills can be covered through deductibles. But significant expenses such as surgeries can be covered through insurance.

Disclaimer: The health insurance policy or plan may have limitations, exclusions, and other terms and conditions that may affect coverage. It is important to carefully review the policy wording before making any decision.