Health insurance jargon simplified: What are sum insured, co-pay, no-claim bonus? Expert answers

Embarking on the journey to secure an insurance policy can feel like navigating through a host of perplexing terms and conditions. Whether a person is delving into health, life, or any other type of insurance, it is imperative to demystify the intricate language woven into these policies to make informed decisions. Insurance, fundamentally a risk management product, offers financial protection against unforeseen events. However, the terminology used in insurance policies often appears convoluted to the insured, demanding a closer examination.

For the benefit of policybuyers, Yogesh Agarwal, Founder and CEO, Onsurity, helps unravel the complexities of some commonly encountered health insurance jargon applicable across a spectrum of policies.

Here are some of the common health insurance-related jargons:

1) Sum Insured 

Agarwal says the bedrock of any insurance policy lies in the sum insured, also known as the 'coverage limit' or 'policy limit'. "This predetermined amount, clearly stated in the insurance policy, varies based on the type of insurance and the extent of coverage provided. There's no one-size-fits-all formula, but your coverage should align with your specific needs," he adds.

For instance, in health insurance, he says the choice of hospital plays a pivotal role. Considering that hospitalisation costs vary significantly between metropolitan cities and tier II or III towns, it's crucial to tailor one's sum insured accordingly. Furthermore, projecting future medical procedure costs, factoring in a 12-14 per cent medical inflation rate, is essential. He opines, "Delaying health insurance purchase is not encouraged as it results in escalating premiums and stringent underwriting processes associated with advancing age."

2) Co-pay: 

The Founder and CEO of Onsurity says that many policies incorporate a co-payment clause, a mechanism designed to share the financial burden between the insured individual and the insurance company. "This entails the insured to contribute a percentage of the claim amount, constituting an out-of-pocket expense," he informs. 

For instance, with a 10 per cent co-payment clause, a Rs 20,000 claim would require the insured to pay Rs 2,000 out of pocket. "Co-payment clauses are typically applied in high-risk situations, such as health insurance for senior citizens etc," he adds.

3) No-claim Bonus: 

A reward for the prudent, a No-claim Bonus (NCB) accrues to policyholders who don’t file a claim during the policy year. Agarwal says, "Typically, for each claim-free year, the sum insured increases by 10 per cent or 20 per cent, reaching a maximum of 50 per cent. Some insurers now offer a doubling of the sum insured, a 100 per cent increase instead of the standard 50 per cent. A few insurers may also offer discounts on premiums as against increasing the sum insured but most insurers still prefer enhancing the sum insured by a certain percentage for every claim-free year."

4) Deductible:

A deductible is the amount an insured individual must personally bear before the insurance coverage kicks in. "It's the initial financial commitment required before the insurer contributes to the costs of covered services. For example, if the compulsory deductible is Rs 10,000 and the hospitalisation bill is Rs 50,000, the insured must pay Rs 10,000 either through another insurance policy or out-of-pocket, with the remaining Rs 40,000 covered by the insurer," he opines.

5) Room Rent Limit: 

Room rent capping, or room rent limit, specifies the maximum amount the insurer will cover for a hospital room. "Expressed as a percentage of the sum insured, this limit places constraints on the room rent, ensuring it aligns with the insured amount. Some policies may state this restriction in absolute figures. Additionally, insurers might implement room rent caps based on accommodation types. Whether it's twin sharing rooms, single private rooms, or non-deluxe rooms, the room rent clause is explicitly outlined in the policy document," he informs.

If the insured surpasses the specified room rental limit in the policy, a concept known as 'proportionate deductions' comes into play during the claims settlement process. Agarwal says that according to this clause, the insurer makes a proportionate deduction from any 'related medical expenditures' in the same proportion as the exceeded room rent limit. This practice is implemented because various hospital expenses, such as doctor visits, surgery charges, or tests, are directly linked to the room rent and may vary depending on the chosen room category.

For example, a surgical procedure in a twin-sharing room may cost Rs 20,000, whereas it could be Rs 30,000 in a single private AC room. Costs escalate even further for higher room categories such as a suite.