When you go shopping for insurance, it is important to be informed about the terminology used before you enter into any contracts. What is the meaning of the terms insurance deductible?
An insurance deductible is the amount of money that you have to pay out of your pocket before the insurance company steps in and pays the remainder. With any form of insurance plan, be it car, home or health insurance, you as the insured is required to settle a certain amount of the total insured claims. Put in general terms, a deductible is the amount deducted from the total insured loss.
The insurance company and the insured enter into a contract with each other, and agree to share the risk in case of any losses. The deductible is usually a fixed amount and in other cases it could be a percentage of the total amount of insurance as indicted in the policy.
Let’s say your deductible is $500 and you become sick and your hospital stay amounts to $2000, you will first pay the $500 from your pocket before the insurance company steps in and settles the remaining $1500.
The purpose of insurance deductible is to deter the policyholders from making a lot of claims that involve small amounts of money. It is reasonably argued that, the policyholder should meet these costs, which generally amount to only a few hundreds of dollars. In so doing, the insurance company will then restrict coverage to claims that involve large insured costs for only a few times during the year.
The insurance deductible can be found in a clause of the insurance policy where it states the amount of insured expenses that should be met by the insured. The insurance company then becomes liable for any payments that exceed this amount. A maximum deductible is set according to what you can afford to pay. It ranges from a few hundreds of dollars to thousands.
The insurance deductibles apply each time you file a claim when an incident happens in the case of auto and home insurance. In health insurance, the deductible will apply annually because it could be hard to put a limit to the number of times you see the doctor. Some insurance health plans have no deductible at all.
Any type of insurance involves a delicate balancing act between deductible and premium (the amount of money you must pay monthly for an insurance policy). High deductibles will lower the amount of monthly premium, and this could be a pretty good deal to some people. For the insurance company, it means the insurer is responsible for a huge percentage of the insurance-covered cost. This saves them a lot of money. For you, the advantage will be lower monthly premiums. Also, lower deductibles mean that the premium pay will be much higher.
Finally, it is important to know that the amount of insurance deductible differs depending on the company. It is advisable that you compare the deductibles when choosing the right insurance plan.