Finding Rs 1 crore health insurance cover costly? A Rs 50k voluntary deduction can reduce premium by up to 35% (2024)

What can potentially derail your household finance — a loss of Rs 50,000 or a loss of Rs 20 lakh? The answer will clearly be Rs 20 lakh. What if the same principle was to be applied to health insurance? Can you withstand a loss of Rs 50,000 if your health insurance coverage goes from Rs 5 lakh to Rs 25 lakh, so that you do not incur a loss of Rs 20 lakh in case of an eventuality? Many will say, “why not, it’s a fair deal”.

Let us see how this works in the case of health insurance. Most of us would love to go for the highest possible sum insured while buying a health insurance policy, so that we get adequate protection. However, many would face a small problem here. A higher sum insured comes with a higher premium, and many will find that difficult to afford. This is where a voluntary deduction can help you reduce your health insurance premium to a large extent. But it comes with its own share of risks.

We tell you how this deduction works, whether you should go for it and the best ways to utilise this feature.

Higher health insurance is not a luxury: If you have a health insurance policy with a low sum insured, you face a big risk. This is because a few years from now, the cost of treatment will, in all probability, be many times higher than your policy coverage. In such cases, you will end up paying the extra cost from your own pocket. “Just having a health insurance policy does not serve the purpose,” says Bhaskar Nerurkar, Head – Health Administration Team, Bajaj Allianz General Insurance. “The coverage should be wide and comprehensive to ensure that you are duly covered. One should always remember that the cost of insurance is substantially low when compared with the financial loss that one might have to bear in case of an unfortunate event.”

A person does not buy health insurance just for a few years but for a foreseeable future, typically 30-40 years. It is important to factor in inflation for a coverage of such a long period. “With medical inflation rising at 14%, if you have a sum insured of Rs 5 lakh today, that will obviously deplete in value 5 years from now,” says Siddharth Singhal, Business Head - Health Insurance, Policybazaar.com. Even if we take a lower medical inflation of 10%, a treatment that costs Rs 5 lakh today will cost 4 times more (Rs 20 lakh) in 15 years.

It is not just the quantity, even the quality of the coverage would get better when you go for a higher coverage. Apaar Kasliwal, ED at PolicyBoss.com, says: “A higher sum insured also enables the policyholder to be tension-free when it comes to choosing a hospital or a medical facility for treatment, especially for chronic or critical ailments and diseases. In case of a family floater plan, higher sum insured will ensure treatment in case multiple family members get hospitalised at the same time; say, due to an accident or any infectious disease like Covid.”

All premiums for an Individual of age 30 years living in Delhi, *premium for 3 years combined, Source: Policyx.com

What happens in voluntary deduction? It reduces premium

As the premium is higher in health insurance policies with a bigger sum insured, it becomes difficult for many people to afford a bigger health cover. However, a voluntary deduction can help you bring down your insurance premium.

Nerurkar says, “A voluntary deduction is a form of self-insurance whereby a customer agrees to bear the healthcare cost up to a certain, pre-decided limit. For example, a customer may choose a deductible limit of Rs 50,000; which means they agree to bear the healthcare cost up to the mentioned limit. It helps in bringing down the premium as the claims up till a certain amount are borne by the insured.”

For instance, if you have taken a health policy with a sum insured of Rs 25 lakh and a deductible of Rs 50,000, you will have to bear the first Rs 50,000 of the treatment in any given year. If the cost goes beyond Rs 50,000 in the same year, it will be paid by the insurer, up to Rs 25 lakh.

“Voluntary deduction is one way of making health insurance premiums affordable, wherein a certain part of the treatment cost is borne by the policyholder himself, while the health insurance cover compensates for all expenses above the deductible limit. This reduces the overall premium significantly,” says Kasliwal of PolicyBoss.com.

It is a type of burden sharing between the policyholder and the insurer for which the insurer rewards the policyholder by lowering the premium. “The higher the voluntary deductible, the lower the insurance premium and the higher the discount. Therefore, people can go for a voluntary deduction to bring the premium within their affordability range,” says Rakesh Goyal, Director, Probus Insurance Broker.

All premiums for an Individual of age 30 years living in Delhi, *premium for 3 years combined, Source: Policyx.com

Why should the young and the healthy go for voluntary deduction?
Even for those who can afford a premium without deduction, a voluntary deduction option can be a prudent choice. “Opting for a deductible in your individual health plan is a smarter way to save premium without risking your financial health,” says Singhal.

This especially works when the person does not have any family history of diseases or health problems and is in good health currently. “Those enjoying good health today are strongly advised to opt for a sum assured that is as high as they can afford,” says Kasliwal. “Because, for a younger person with an ailment-free body, insurance premiums are lower. As you age, health insurance premiums increase. If you start at an early age, waiting periods of most diseases also get completed over a period of 2-4 years of successive policy renewals.”

All premiums for an Individual of age 30 years living in Delhi, *premium for 3 years combined, Source: Policyx.com

Best way to use this feature with corporate health cover
Many people who enjoy corporate health coverage may not have to pay even for the voluntary deduction amount as they can use their corporate group health insurance to get this benefit .

Each claimless year will help you build a fund to support deductible
Even when you do not have a corporate policy the chances of claims just around deductible amount, which have to be paid by yourself only, will remain low for a good number of people for many initial years. You can create an emergency fund corpus just by the savings done on premium.

HDFC Optima Secure offers a saving of Rs 10,266 through voluntary deduction of Rs 50,000 on annual premium for a policy with sum insured of Rs 2 crore. So, if you have 5 claimless years, you would already have a corpus that is equal to the value of a deductible amount during a hospitalisation. This emergency fund can be used to manage smaller expenses or left to grow.

For late starters, it offers a chance to get a higher coverage
With age, health insurance premiums go up. If you have figured out that you need a higher sum insured only at a later part of life, then this feature may help you limit your loss to the voluntary deduction and give you much higher protection.

“If you were to start insurance at an older age, the chances of pre-existing diseases are higher. This would impact the coverage as there would be disease-specific waiting periods. The insurance would cover these treatments only after that period,” says Kasliwal.

How to choose the right voluntary deduction amount
While a higher insurance cover is always desirable, you need to be very careful while deciding the voluntary deduction amount. “Choosing the right voluntary deductible is like choosing the right amount to start a recurring deposit. Even though it may seem possible that you can pay a higher instalment initially, you may not be able to guarantee that payment for the rest of the term. Hence, it is necessary to choose an amount that is in your best interest,” says Goyal of Probus.

Choose an amount that you think is affordable, suggests Singhal. “Opt for a deductible amount you are comfortable paying. For instance, selecting a very high deductible would mean paying that amount from your own pocket every time there is a claim. This would defeat the purpose of having health insurance in the first place,” he says.

Mind the higher loss through voluntary coverage
If you choose a very high deductible without having any other health insurance support, and if the frequency of hospitalisation becomes high, you may end up losing more than what you save through reduced premium. "Deductibles do bring down the premium costs but you end up paying from your own pocket on each claim," says Naval Goel, Founder and CEO of PolicyX.Com

In case you foresee a larger risk of frequent hospitalisation based on the current health conditions or the family history, you should avoid going for a higher voluntary deduction. “You should keep in mind the health issues you deal with and the frequency of the claims,” says Goyal of Probus. “Paying a high deductible fails the main purpose of an insurance policy, which is to help you with financial support during a crisis. If you are someone who wants to avoid paying extra money at the time of a claim, then you should avoid choosing voluntary deductibles or go for a very less amount.”

Precautions one should take while buying a health plan with voluntary deduction
You should check if the policy has the flexibility to increase or decrease the voluntary deduction during renewals. “In case you are planning to buy a health insurance cover with a deductible, do check if the insurer allows you to change the deductible cover to a non-deductible one in future,” says Kasliwal.

Suppose you buy a flexible plan and then realise that the initial claim amount would be needed frequently, you might have the option of removing your deductible by paying a corresponding higher premium. Some policies allow this. If not, you can buy another policy with a corresponding deductible limit. “In case you plan to buy a base/top-up combo, make sure you buy both covers from the same insurer and that both start and end on the same date and time. This will ensure seamless coverage at all times and also ensure that you don’t have to deal with multiple insurers at the time of claim,” adds Kasliwal.

You should also check to see if the voluntary deduction is applicable only once a year or on every claim during a policy year. “One should look at affordability first. The voluntary deduction is nothing but the initial healthcare cost that the customer will pay out of his pocket. Second, one should check whether the voluntary deduction is applied at every claim or on the overall healthcare cost in a year,” adds Nerurkar.