Category: deductible insurance

What is an Insurance Deductible

In order to get the most out of your insurance policy, it is crucial that you understand what is an insurance deductible as well as the role deductibles play when insuring a home, a car or health insurance for your family. Basically, a deductible refers to the amount of money a policy holder has to pay for an insured loss. That is, an amount of money you have to pay before the insurance company can step in and take care of any additional charges. Deductibles represent an important part of any insurance plans and they have been in use for many years. Deductibles act as a technique of cost sharing between the policy holder and the insurance company with the aim of reducing both the risk of loss to the insurance and at the same time, lower the cost of premiums for the policy holder.

Depending on the insurance plan of your choice, a deductible can be calculated as either a fixed amount or a percentage of the total amount of the insurance policy. Deductible amounts are often found on the front pages of insurance policies especially for homes and motor vehicles. For instance, if you have a $500 deductible, that $500 will be deducted from your insurance claim. Therefore, if the insurance company calculates and decides that the total loss for, let’s say your car, was $8000, you will be required to pay $500 and the insurance company will pay the rest, which in this case is $7, 500.

Percentage deductibles are calculated in a different manner. For example, if it is a home, it will be based on a specified percentage of the home’s insured value. For example, if your house is insured for $200, 000, and according to your insurance policy there is a 2% deductible, $4000 will be subtracted from any claim that the insurance claim reimburses you for. Therefore, if the loss is calculated as $20,000, you will be paid $16,000.

Throughout the country, the amount of deductibles has been rising. For home owners in areas that are considered to high-risk, such as hurricane prone areas, there policyholders may be charged special deductibles. These deductibles, however, are only paid when the cause of loss is due to a hurricane or other natural disasters. Additionally, these deductibles are usually higher, and often take the form of a percentage of the total value of the insurance.

In the health care industry, deductibles are usually charged depending on the type of plan. Individual medical plans charge lower compared to family plans, which offer medical cover for more than one person. In health insurance, deductibles are used hand-in-hand with other cost sharing techniques such as co-payments and co-insurance. In the medical sector, policy holders pay a deductible each time they see a doctor for medical services. After this payment is made, the insurance comes in and takes care of the rest. However, these deductibles are usually added up and when a policy holder reaches an out-of-pocket maximum determined by the insurance companies, the companies pay 100 per cent of all medical expenses for that year.

Deductible insurance

When buying auto, home or health insurance, it is highly advisable that you understand the amount of deductible you are required to pay in order to make an informed decision.

A deductible insurance is the amount of money you have to pay from your own pocket before your insurance company steps in and pays the rest. With home and autoowners insurance, you have to settle a certain amount as agreed upon in the contract to cover damage to your car or house respectively. The same is also true for initial health costs in the case of health insurance.

Let us use car insurance as an example. If you are involved in a car accident that results in damages worth $2000 and your deductible is $500, you will be required to pay $500 only for repairs. The insurance company would pay the remaining $1500.

The policyholder enters into an agreement with the insurance company to share the cost of insured loss that may be incurred. A deductible insurance is basically the amount deducted from the total insurance claim. It can range from a few hundreds to thousands of dollars. A maximum amount, that shouldn’t be exceeded, is always agreed upon when negotiating the insurance policy.

Deductible insurance is an important part of the insurance contract that serves an important role when settling claims. Its main purpose is to prevent policyholders from making many claims that involve low costs that they could otherwise afford to pay for themselves. Insurance companies are now left to compensate claims that involve large costs for only a few times a year.

In the insurance business, deductibles go hand in hand with premiums. The deductible determines the amount monthly insurance premium you pay for your policy. That is, when the amount of deductible is high, the premium will be much lower and vice versa. Paying a large deductible is a good way to save money for most people.

When choosing the appropriate insurance plan, it is vital to choose the amount of deductible that you can afford. Note that, insurance companies will only pay for damages to your house or car after you have paid your deductible in full. Also, deductibles only cover property you own and cannot be applied to liability claims (damages suffered by third parties). E.g. when you hit a pedestrian with a car or when a person gets injured in your home.

Things are a little different for health insurance. Most health plans provide the insured with benefits such as preventive care, doctor visits or prescription pills without requiring you to pay the deductible.

For auto and homeowners insurance, deductibles are applied each time you file a claim in case of damage. In health insurance, it could be hard to delimit the number of hospital visits so the deductibles are applicable annually.

Deductible insurance could either be a fixed amount or a percentage of the total amount of insurance in the policy. Usually, it is indicated in the clause of the insurance policy.