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.

Insurance deductible

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.