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 is a Deductible for Health Insurance?

In health care insurance, a deductible is a term referring to the amount of money you have to pay from your own pocket every year before you can enjoy the benefits of your insurance plan. Deductibles are commonly confused with other out-of-pocket payments such as co-payments and co-insurance. It is therefore understandable when people seeking medical insurance are not able to choose the health care plan that suits them most. In order to afford appropriate health care for you and your family, you got to have a comprehensive understanding of how low and high deductible plans work. Additionally, it is important to understand how monthly premiums affect your insurance plan.

Deductibles can vary widely, from a few hundred dollars to thousands of dollars, depending on the specific health insurance plan. Some insurance plans, for example HMOs, do not have any deductible fees charged to the policy holders. In general, when an individual visits a doctor, they are afterwards charged a medical fee. Depending on the terms of the insurance plan covering your medical care, you may be required to pay a certain amount known as co-insurance until you reach a maximum limit called the out-of-pocket maximum. Co-insurance is another form of cost sharing technique meant to lower the risk of insuring individuals and families and hence lowering the overall cost of medical insurance. After reaching the out-of-pocket maximum, the insurance covers the total cost of any additional medical bills.

Basically, insurance plans are a game of numbers between premiums and deductibles. For instance, if you are willing to pay more premiums per month, the lower the deductibles you will have to pay when you visit a doctor. The reverse is also true, the less you pay in terms of premiums per month, the more deductibles you will pay when you pay the doctor a visit.

High-deductible health plans are sometimes known as “consumer-directed” insurance policies. These are plans with deductible amounts that are more than the maximum set by the IRS. As of 2015, these values were no less than $1300 for individuals and $2600 for family insurance plans. For the insurance companies, a high deductible amount means that the insured individual is responsible for a larger percentage of their medical costs initially, which saves the companies money. For the insured person, they will part with a lower monthly premium.

People with high-deductible insurance plans are usually qualified to apply for a Health Savings Account (HAS). These accounts allow people to save a limited amount of money for medical expenses without being taxed. In a case where the employer is responsible for the employees’ medical insurance, then the employer is allowed to contribute to their workers’ HSA’s account from their pre-tax income. This leads to significant amount of savings. In general, the HAS account is usually linked to a debit card that one can use to cover out-of-pocket medical costs including the high deductible charges. Since this money is not taxed, it encourages peole to save for their medical care as well as reduce general tax burdens.

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.

Out-of-Pocket Maximum

In the context of health insurance, the out-of-pocket maximum is simply the largest amount of money that an insured individual has to pay towards the medical cost every year. It is calculated as a total of all the deductibles co-insurance and sometimes co-payments made in a year. After you have reached the out-of-pocket maximum for that year, the health insurance company will now be responsible for 100 per cent of all your health care expenses for that year. However, this is not always the case. The out-of-perfect maximum is meant to protect individuals from huge financial risk that may arise as a result of huge medical bills. Therefore, this risk is passed on to the insurance companies, exposing them to higher risk.

As a result, health insurance companies have come up with creative ways to try and mitigate this risk. You will therefore find a lot of people confused about what counts towards your out-of-pocket maximum and what does not. It is also sometimes difficult to tell what exactly your insurance company pays for after you have reached the out-of-pocket maximum as well as how much this maximum is. In case you are covered using a medical family plan, that is, a plan that covers more than one individual, the out-of-pocket maximum amount will be considerably higher. However, the co-payments and co-insurance that you pay for every member covered in that plan is added up to the out-of-pocket amount.

Imagine you have a plan that covers your three children and your wife. Let us assume that the out-of-pocket maximum required is $10,200 and a deductible of $500. After paying the $500 for a medical bill, it goes to the out-of-pocket maximum and then the plan kicks in, taking care of the rest of the expenses, if any. Every once in a while, a member of the family may need to pay the doctor a visit. Assuming the co-payments and co-insurance payments add up to $700 this time, these will also be added to the out-of-pocket maximum meaning that you will have paid a total of $1200 towards your out-of-pocket maximum.

Now assume that one of your kids has broken their leg playing football. The medical expenses alone are $40, 000, not considering the follow-up care or even more surgery that may be required. In such a case, you will pay only a maximum of 9,000 in terms of deductibles, co-insurance and co-payments. This is because you would have reached the out-of-pocket maximum. Therefore, the insurance company will at that moment step in and cover the rest of the medical bills. As this situation clearly shows, yes, paying $10, 200 is a lot. However, it would be very financially taxing to pay the whole $40, 000 and other additional charges. It is important to note that the monthly payment an individual makes to maintain their health insurance coverage does not count towards the out-of-pocket maximum. In order to be on the safe side, experts recommend that everyone should take a close look before settling on a specific medical plan.

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.