An aggregate deductible in health insurance refers to the total out-of-pocket amount a policyholder must pay in a policy year before the insurer starts covering medical expenses. Unlike a per-claim deductible, which applies to each individual claim, the aggregate deductible applies to the total of all claims made during the policy period.

For example, if your aggregate deductible is ₹75,000 and you make three claims in a year, the insurer will begin covering costs only after your total medical bills cross ₹75,000, which you must pay first.

This deductible is usually a fixed amount or a percentage of the sum insured, and it may vary depending on the insurer and plan. It is most commonly seen in top-up and super top-up health insurance policies, where it acts as a cost-sharing mechanism.

Understanding how an aggregate deductible works helps you make better decisions about when and how to use your policy, especially if you are looking for budget-friendly coverage with higher thresholds.

Let us understand the concept using an aggregate deductible medical insurance example and find out how it works.

Suppose you have purchased a health policy of ₹12 lakhs with an aggregate deductible of ₹3 lakh. In the event of a medical emergency, you availed yourself of medical facilities multiple times in a year, resulting in a bill of ₹6.5 lakhs.

When you raise a claim with your insurer, they will be liable to pay ₹3.5 lakh only (6.5 lakh-3 lakh). However, the insurer will pay the claim amount only after you have paid the deductible amount of ₹3 lakhs from your pocket.

Thus, your insurer’s liability is to pay for the claim amount that exceeds the aggregate deductible value. In case the aggregate of all your claims during a year is lower than the aggregate deductible, the insurer will not be liable to pay anything.

For example, your medical expenses amount to ₹3 lakh and the aggregate deductible is ₹5 lakh. In this case, the insurance company will reject your claim, as the deductible limit is ₹3 lakh. The insurer is liable to pay only when the deductible limit is exceeded.

The aggregate deductible option is a subjective one. While it may be suitable for one person, it may not benefit another. Since the aggregate deductible requires the insured to pay the deductible amount, it automatically reduces the insurance premium.

Thus, if you want to save on insurance premiums, opting for an insurance plan with an aggregate deductible may be good. It is also a suitable option if you are healthy and don’t make claims often.

However, you want to avoid huge out-of-pocket expenses or may have any chronic condition for which predicting the medical expenses is difficult. In that case, a deductible option may not be a good choice, as it could strain your finances.

In India, there are two types of aggregate deductibles offered by most insurance providers: voluntary and involuntary. The involuntary deductible is also known as a compulsory deductible. Knowing how each one works helps you to understand its impact better.

Voluntary Deductibles

Voluntary aggregate deductible in health insurance is an amount that the insured agrees to pay at their free will during claim settlement. The policyholder is free to choose an amount that suits their budget when buying the insurance. A huge benefit of a voluntary deductible is that it reduces the premium amount for the insured.

When an individual opts for voluntary deduction, they must pay the deductible amount to be eligible to receive the claim amount from the company.

Such a deductible amount is not mandatory. However, it may be helpful if an individual is young, healthy and wants to avoid spending on premiums.

For example, if you have opted for a voluntary deductible of ₹50,000 and the claim amount totals up to ₹1.5 lakh. In this case, you must first pay the ₹50,000 deductible. Once you pay the deductible, the insurance company will settle the claim amount.

Compulsory/Involuntary Deductibles

A compulsory or involuntary deductible is a mandatory amount fixed by the insurer. Since it is a compulsory amount, it cannot be modified or avoided by the insured. All the policyholders must pay this amount before the claim settlement. Being a mandatory payment, it does not result in any reduction in the premium amount.

Pros

• Low Premiums: When deductibles are factored in, they reduce the insurer's liability to some extent, as they do not have to pay the entire claim amount to the insured. Hence, they reward the insured by way of reduced premiums.

• Encourages Thoughtful Medical Decisions: Since deductibles are an out-of-pocket expense for the insured, it encourages them to avoid spending on unnecessary and expensive medical procedures. One also avoids making small claims, which can earn a no-claim bonus and provide further benefit by way of a discounted premium.

• Beneficial for Hefty Medical Expenses: The deductible option is a great choice if you want large medical expenses, such as ICU charges, surgery costs, etc., to be taken care of. While the insurance policy covers hefty medical costs, you can take care of the smaller charges from your pocket.

Cons

• Not Recommended for All: The aggregate insurance option is not recommended for all insured individuals, particularly those without a strong financial backup. Failing to have a proper backup can result in financial difficulty, as you have to pay the deductible amount upfront in case of medical emergencies.

• Not Ideal for Small & Frequent Claims: If you incur small but frequent medical expenses, you may not be able to exhaust the aggregate deductible amount. Therefore, you will have to pay for all the expenses from your pocket and the insurance plans will remain unutilised.

• Lack of Initial Benefit: Since the policy coverage kicks in only after the deductible amount is paid, there is a lack of financial support initially or in case of low medical expenses.

• Avoid Medical Care: In a quest to save on the initial deductible, policyholders may avoid seeking medical assistance or even avoid medical treatments. It can lead to aggravation of health problems and result in hefty medical expenses later on.

Here are some factors that you must consider when opting for an aggregate deductible in health insurance.

• Age Factor: Age is one of the primary factors to consider when choosing an aggregate deductible. Young and healthy individuals in their 20s and 30s can opt for deductibles, as there are fewer chances of health-related emergencies and subsequent medical claims as compared to older individuals. Thus, younger individuals can opt for higher deductibles, whereas older individuals must choose lower deductibles to reduce out-of-pocket expenses.

• Health Conditions: An individual’s current health condition also helps them decide whether aggregate deductibles will be a suitable option or not. Those with no chronic illnesses can opt for aggregate insurance as they will not make frequent claims. Also, the deductibles will help them save on the premium amount substantially.

• Family Health History: If there is a family history of chronic illnesses, such as kidney disease or diabetes, one should not consider including high deductibles in their medical insurance plans, as it can strain the finances. In such a case, it is wise to choose a lower deductible amount to minimise out-of-pocket expenses.

• Family Floater Options: Aggregate deductibles in family floater insurance plans require added caution, as the deductible amount applies to all the members. It means that one must pay the full deductible amount before raising any claim. If the deductible amount is high, you may have to pay a substantial amount out of pocket before the insurance coverage kicks in. Therefore, choosing a low deductible amount is the best approach.

An aggregate deductible in health insurance is an ideal choice if you want to reduce the incidence of premiums. Opting for an aggregate deductible allows you to manage the smaller expenses and turn to insurance for the bigger ones.

If you are looking for efficient medical insurance with an aggregate deductible option, then TATA AIG plans are a great choice. You can opt for our Medicare Select plan, which is a highly customisable insurance option, offering you the choice of an aggregate deductible.

Apart from the aggregate deductible, you can customise the health plan to suit your medical and financial requirements. You can customise the sum insured, policy tenure, add-on covers, etc., to gain maximum benefit from low-premium health insurance.