Definition
Co-Payment
Co-payment is a clause requiring the policyholder to bear a fixed percentage of every admissible health claim, with the insurer paying the rest.
Under a co-pay, if a policy has, say, a 20% co-payment, the insured pays a fifth of each claim and the insurer the remainder. Co-pays reduce premiums and discourage frivolous claims by keeping the policyholder financially involved, a tool against moral hazard.
Co-payments are common in senior-citizen plans and in cover bought in higher-cost cities (a 'zone' co-pay). Buyers should distinguish a mandatory co-pay from a voluntary one chosen to cut premium, and check whether it applies to all claims or only specific ones.
Related terms
- DeductibleA deductible is the amount you must pay yourself before your insurance starts covering a claim.
- Sub-LimitA sub-limit is a cap within a health policy on the amount payable for a specific treatment, procedure or expense category, regardless of the overall sum insured.
- Moral HazardMoral hazard is the increased risk that arises when being insured changes a person's behaviour, making them less careful or more prone to claim.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.