Texas General Lines — Life, Accident, Health and HMOHealth InsuranceMedium
A client is comparing two health insurance policies. Policy A has a higher deductible but lower monthly premiums. Policy B has a lower deductible but higher monthly premiums. Assuming both policies offer similar benefits and coinsurance, which policy structure is generally designed for individuals who anticipate fewer medical expenses and prefer lower upfront costs?
- APolicy B (Lower deductible, higher premium)
- BPolicy A (Higher deductible, lower premium)
- CBoth policies offer the same overall value
- DNeither policy is suitable for individuals with low anticipated medical expenses
Show answer & explanationAnswer & explanation
Correct answer: B. Policy A (Higher deductible, lower premium)
Policies with higher deductibles typically have lower monthly premiums. This structure is attractive to individuals who expect to have fewer medical expenses and prefer to pay less upfront each month, accepting higher out-of-pocket costs only if significant medical events occur.
Why the other options are wrong
- A. A lower deductible policy means higher monthly premiums, which is preferred by those who anticipate more medical expenses and want lower out-of-pocket costs when claims occur.
- C. The overall value depends on individual medical usage and financial preference, so they don't necessarily offer the same value for everyone.
- D. Policy A is specifically designed for individuals with low anticipated medical expenses.
Deductible vs. Premium Relationship
In health insurance, there is an inverse relationship between the deductible and the premium: generally, a higher deductible leads to a lower premium, and a lower deductible leads to a higher premium.
- Higher deductible means more out-of-pocket before benefits begin.
- Lower premium means lower monthly cost for coverage.
- Suitable for those who are healthy or have emergency savings.
- Opposite is true for lower deductible/higher premium plans.
Memory trick: The deductible is the 'gate', the premium is the 'toll'.