What is Deductible, Co-Pay and Binder in Insurance : Know the meaning - financebrother

Deductible

People generally think about the word deductible while they investigate to purchase an insurance policy. The term Deductible means the predefined amount up to which the insurer (Insurance Company) is not liable to pay the claim, insured has to bear that risk. The insurance company is only liable to pay the loss amount that exceeds the deductible limit up to the policy Sum Insured limit.
The purpose of deductible is to reduce frequent claims, avoid small claims, only cover the major loss etc.

Example: A company buys fire insurance for a machinery of sum insured INR 10 million with a 10% deductible. In this case, if a loss occurs in machinery due to a fire of amount INR 1.5 million, then the insurance company is only liable to pay 0.5 million rest loss amount is liable for insured only.

Sum Insured = INR 10 million
Deductible = 10% of 10 million = 1 million
Loss Occurred = 1.5 million
Paid by Insurance Company = 1.5 million – 1 million = 0.5 million.

Co-Pay
Co-Pay as the word, explains collaboration of the claims by the insurer and insured. The benefit of co-pay is insured have to pay less premium. We understand this concept more through an example: A person buys a health insurance policy of Sum Insured INR .5 million with 20% co-pay. If the person is hospitalized for 3 days and the bill amount is .1 million in this case, the insurance company is only liable to pay INR 80k and the rest of 20k is to be paid by the insured.

Binder
After submitting the application for buying an insurance policy, the agent should issue a document called Binder. A binder is an oral or written agreement which provides temporary evidence till policy issuance. Issuance of a Binder does not guarantee issuance of the insurance policy. No binder is valid post issuance of the policy.