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.

What exactly does deductible mean?

Whether you own a car, health or home insurance, you have most likely come across the term deductible. So what exactly does deductible mean? In the context of medical insurance, deductible simply refers to the amount that an insurance policy holder has to pay every year toward their medical expenses. The insurance plan that the policyholders will only pay the rest of the amount after the policyholder has completed paying this deductible amount.

For example, imagine that you have a health plan that charges $1500 as deductible. After visiting a doctor, your medical bill may have added up to $30, 000. The insurance company will require you to dip into your own pocket and pay $1500. After this point, the benefits of your medical plan will kick in and cover the remaining $18,500, depending on the terms and conditions of the specific policy. The purpose of the deductible amount is to help reduce the cost of insurance premiums. That is, both the individual and the insurance company meet halfway to cover the costs. As a result, the number of small claims will be significantly reduced while the policyholders will benefit from their plans when the medical expenses become stiff. Deductibles get rid of unnecessary visits to the doctors. For instance, it is unlikely for a person with a plan that has a $1000 deductible to go to the hospital for a bruise or a running nose as compared to someone whose insurance pays for everything.

At this point, it is important to note that some types of care such as preventive care are usually not subjected to a deductible amount. This means that for common services such as screenings, annual physical exams, child-visits and immunizations, among others, a deductible will to be charged. The idea behind this move is to encourage policyholders to be proactive in taking care of their health by preventing diseases instead of waiting until they are sick and require more expensive medical care. Prevention as well as early detection have proven to be one of the most effective methods of reducing healthcare costs.

Many people are normally confused between the terms “deductible” and “co-payments”. While both these terms are added up and considered out-of-pocket expenses, they are two totally different things. For instance, a co-payment is simply a predetermined, fixed amount of money that a policy holder pays for certain medical expenses. For example, a $25 payment for a prescription drug is considered a co-payment. The insurance company then meets any additional amount of the medical expenses if it falls above the maximum co-payment amount one is required to pay. Generally, in most medical health plans after co-paying for a service or a prescription drug, a deductible is not a must. Therefore, it is important to carefully choose between different medical plans due to these details. Some medical covers have co-payments that others do not have. Additionally, some plans have co-payments that are considerably higher. Some do not have any co-payments whatsoever and rather charge a portion of the total amount of the medical bills.

What does deductible mean

If you have ever bought insurance before, say health, car or home, you have certainly come across the term deductible. But what does deductible mean?

A deductible is the amount of money that the policyholder, which is you, must pay out of their pocket to cover medical expenses before the insurance provider will pay any extra costs. Put more simply, a deductible is the amount “deducted” from an insured loss. The insurance company and the policyholder agree to the share the risk when they enter into a contract. Also, a deductible is always applied on property or health insurance.

The purpose of deductibles is to discourage policyholders from making a huge number of claims of which they can meet the cost comfortably themselves.

The insurance firm restricts coverage to claims that are noteworthy enough to involve large costs. In that event, the insurance premium (the amount you must pay monthly for an insurance policy) is normally cheaper when the amount of deductible is high. The opposite is also true that low deductibles will attract high monthly premiums.

This further explains what does deductible mean. A deductible can either be a fixed amount of money or a percentage of the total amount of insurance in a policy. If you have a health insurance plan that has a fixed deductible of $1000 and you happen to stay in hospital for a while. And the medical expenses amount to $1500. You would have to pay the $1000 first from your pocket before the insurance provider pays the remaining $500.

Percentage deductibles are different. They are calculated as a percentage of the total insurance value. If your property or health is insured for $10000 and the insurance policy has a 3 percent deductible, $300 would be deducted from the amount the insurance provider compensates you. When you suffer insurance loss worth $5000, you would be paid $4700.

Deductibles are contained in the clause of the insurance policy that directs how much expenses covered should be met by the policyholder. The insurance provider then becomes responsible for any expense that goes beyond this amount, but not exceeding the maximum value of the insurance policy as agreed upon by both parties.

Deductibles can either be applied on each incident or on an annual basis depending on the policy. For autoowners or homeowners insurance policy, the deductible is applied every time you file a claim. In the case of health insurance the deductible is applied annually because it is hard to determine the number of medical cases that may occur.

The deductible differs depending on the insurance company and the laws of the state under which they operate. It is advisable that you find information about what does deductible mean when you go shopping for insurance.

Note that deductibles do not apply to the liability section of homeowners or car insurance policy. They apply to the property damage in case of a collision or when the roof of the house is blown off.