DEDUCTIBLE AND CO-PAY
Deductible is like self-insurance to a limit, and only when your claim exceeds that limit does the insurer pay for the claim. For instance, in case of a health insurance policy, with `1 lakh deductible and `1.2 lakh as the claim, the insurer pays `20,000 claim, with the rest absolved by the policyholder. In such cases, if the claim is under `1 lakh, the insurer has nothing to pay for. By opting for such self-insurance, the policyholder gets a significant discount on the premium. This strategy is good to adopt if you have the financial power to manage the self-insurance to the required threshold.
Co-pay in health insurance is a fixed sum that the policyholder has to pay for a covered medical service and the insurer takes care of the rest of the amount. The co-pay amount depends on the nature of the treatment and, unlike the deductible, is mostly a percentage of the claim. For instance, in case of a co-pay clause of 10 per cent for a claim of `1.2 lakh, the policyholder pays `12,000 and the balance `1.08 lakh is paid by the insurer. Think of co-pay as a technique to discourage policyholders from raising frivolous claims.