Health insurance deductibles explained: Can this simple feature cut your premium by up to 50%?

Health insurance premiums have been rising steadily, prompting many policyholders to look for ways to reduce costs without compromising coverage. One option gaining attention is the deductible, a feature that can significantly lower premiums but also increases out-of-pocket expenses when a claim is made.

According to health and life insurance expert Nikhil Jha, adding a deductible to a health insurance policy can reduce premiums by 22% to 50%, depending on the deductible amount and the sum insured. However, he cautions that the feature is best suited for specific types of policyholders and may not be ideal for everyone.

What is a deductible?

A deductible is a fixed amount that the policyholder must pay before the insurer starts paying for eligible medical expenses.

For instance, if your health policy has a ₹25,000 deductible and your first hospitalisation claim in a policy year is ₹2 lakh, you will pay the first ₹25,000, while the insurer settles the remaining ₹1.75 lakh.

If the first claim in a policy year is less than the deductible amount, the insurance company will not make any payment.

Jha explains that once the deductible has been paid on the first claim, subsequent eligible claims during the same policy year are generally covered in full, subject to policy terms and the available sum insured.

Deductible vs Co-pay: What's the difference?

Many buyers confuse deductibles with co-pay, but the two work differently.

A deductible is a fixed amount, whereas a co-pay is a percentage of every claim.

For example, a 20% co-pay on a ₹10 lakh hospital bill would require the policyholder to pay ₹2 lakh. By contrast, a ₹25,000 deductible on the same bill would limit the policyholder's contribution to ₹25,000 before the insurer pays the balance.

According to Jha, deductibles are generally more predictable because the out-of-pocket amount is fixed.

How much can you save?

Premium savings depend on the deductible selected.

Jha says that for a ₹10 lakh health insurance policy:

A ₹25,000 deductible can reduce the premium by around 22.5%.
A ₹50,000 deductible can lower the premium by about 40%.

Some insurers offer even steeper discounts for higher deductibles, although the exact savings vary by insurer, policy type and sum insured.

Premium Savings with Deductibles (Illustrative)

Who should consider a deductible?

Jha believes deductibles can work well for employees already covered under a comprehensive corporate health insurance policy. Since many such policyholders rely on employer-provided coverage for smaller claims, they may rarely need to claim under their individual policy. A deductible can therefore reduce premiums while allowing the individual policy to continue serving waiting periods and providing long-term coverage.

However, he advises keeping the deductible relatively low  — typically ₹25,000 to ₹50,000 — to avoid a heavy financial burden during hospitalisation.

Pros and Cons of Choosing a Deductible

When can a deductible become expensive?

A deductible may not be suitable for people who expect frequent medical expenses.

Jha cites illnesses such as cancer, where chemotherapy can result in multiple hospitalisation claims every few weeks, and kidney failure, where regular dialysis can lead to repeated claims. Depending on how the policy applies the deductible, recurring hospitalisation costs could increase the policyholder's out-of-pocket spending.

He also notes that insurers may impose conditions on removing a deductible later. For example, some policies may restrict its removal beyond a certain age or require a minimum period of continuous coverage before allowing the change.

While deductibles can substantially reduce premiums, policyholders should weigh the savings against their expected healthcare needs and ability to absorb initial medical expenses before opting for one.