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Deductibles: The double-edged sword!
Deductibles: The double-edged sword!
With medical insurance premiums skyrocketing, many policyholders are struggling to decide whether to continue or surrender their policies. To address this, the government has mandated that all medical and health insurance (MHIT) products must offer a co-payment option by September 2024. This aims to temporarily curb the rising costs of insurance.
Co-payment means that policyholders share some of the costs. Terms like deductibles, co-insurance, and excess all mean you pay a portion of the expenses yourself. While these options lower your premium, it’s essential to understand how they work. For instance, choosing a deductible of RM 5,000 will reduce your premium, but you'll have to pay that amount out-of-pocket before your insurance kicks in.
Insurance companies prefer when you share costs, so they offer lower premiums as an incentive. However, be cautious. If you opt for a high deductible, ensure you have enough savings or an additional medical plan to cover the amount you need to pay upfront. For those covered by their company’s employee benefits insurance, opting for higher deductibles can be a smart choice, as you can save more on premiums.
If you can’t afford even a lower deductible, consider a standalone medical plan or avoid adding too many riders (optional benefits like critical illness coverage or premium waivers).
Ultimately, it’s wise to discuss your financial situation with a professional agent to choose the best medical plan for your needs.
Understanding Insurance Jargon: Co-payment, Deductibles, and Excess
Co-payment / Co-insurance: This refers to the fixed amount or percentage of medical costs that you pay out of pocket for a specific medical service. It can be triggered under certain conditions. If there's a maximum limit you must bear, it's called "Capping"; otherwise, it's "No-capping".
Example: Felix has a medical plan that covers room and board up to RM 200 per day. He needs to bear 20% of the medical expenses because he chooses a room rate higher than RM 200 per day. However, the maximum he'll need to pay is RM 2,000 due to his plan's RM 2,000 capping.Deductibles: The amount you must pay out of pocket before your insurance begins to cover expenses.
Example: Vincent's medical plan covers room charges up to RM 500 per day with an annual limit of RM 1,000,000 and a deductible of RM 10,000. When he undergoes appendectomy and chooses a RM 300 room, he needs to pay RM 10,000 upfront, and the insurance company covers the rest.Excess: A fixed amount you agree to pay when making a claim before your insurer pays the remaining balance. It is often used in motor and travel insurance.
Example: If you have an excess of RM 500 on your car insurance, you will pay the first RM 500 of any repair costs, and the insurer will cover the rest.
Further reading:
1. New Health Insurance Co-Payments Expose Households To Financial Catastrophe
2. BNM's co-payment rule for insurance providers
Hindsight:
The cost of insurance for MHIT products is no longer fixed. To maintain its stability, policyholders must play an important role in not abusing the benefits. Otherwise, the consequences will "boomerang" back to you.
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