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What Is an Insurance Deductible?

A deductible is the amount the insured must pay out of pocket before their insurance policy starts paying. The insurer pays for expenses covered by the policy after the policyholder pays the premium. Insurance deductibles play an essential role in the insurance claims process.

Knowing what different insurance terms mean in a given plan can be difficult when you purchase insurance. Whether looking at health insurance to cover your health care expenses or a homeowners policy, you'll need to become familiar with key terms like insurance deductibles and premiums.

This basic knowledge about your insurance coverage options will help you make informed decisions. You can use this information to understand the total costs of your insurance and out-of-pocket maximums. This knowledge could help you save money and avoid insurance scams like premium diversion.

You can learn about particular benefits and what kind of plan you can afford based on out-of-pocket costs and other vital considerations.

A reputable insurance agent can also help explain the types of deductibles based on your insurance needs. They can also provide an insurance quote based on factors most important for you — a low deductible, lower premium, or other considerations.

Learn more about insurance deductibles and their role in setting insurance premiums in this article.

Insurance Deductible Defined

Insurance costs play a central role in responsible financial planning for all but a few individuals possessing endless financial resources. Thus, knowing how deductibles work and the dollar amount required for an insurance deductible is critical.

Definition of Insurance Deductible

A deductible is the amount of money you, the policyholder, must pay for services or benefits covered by your insurance policy. Once you pay the agreed minimum deductible, your insurance company will help pay for services.

Each type of policy comes with separate deductibles. Once you've paid the deductible, your insurer pays for covered services up to the plan limit. However, insurance might cover some benefits outside of the deductible amount. The deductible and out-of-pocket expenses may apply annually or per incident, depending on your policy.

Examples of How Insurance Deductibles Work

Suppose you have a car insurance plan covering damage to your car. Your policy specifies an $800 deductible per claim. If you're in an accident resulting in $1,000 worth of damage, you will pay for the first $800 worth of repairs. Your insurance company will cover the remaining $200.

Similarly, your dental plan has a $200 annual deductible, but your first dental visit is a routine check-up. That visit may be covered entirely, regardless of the deductible. Your dental policy covers yearly check-ups. You incur no out-of-pocket costs for the routine check-up.

Your next two dental visits are for services that trigger your deductible under the terms of the policy. If these visits cost $190, you'll pay the total costs for both visits in full. But your insurance will help pay for subsequent visits within the same plan year.

Types of Insurance Deductibles

There are many types of insurance, including:

  • Homeowners insurance
  • Renter's insurance
  • Auto insurance
  • Health care insurance for health care costs, including medical services, health care services, and other medical expenses

You can find deductibles in all types of insurance. However, there may be different deductibles within those categories of insurance.

For example, in a health insurance plan, you might have one deductible for general services and another for prescription drugs. Or, there might be one deductible for each individual covered under the plan. And another deductible for all family members as a whole.

A home insurance or flood policy might specify one deductible for the structure of your home and another for its contents. A careful reading of your policy should reveal all applicable insurance deductibles.

How Much Does an Insurance Deductible Cost?

Deductibles vary widely depending on the type of insurance and the benefits your particular insurance plan offers. Deductibles for more catastrophic events, like floods and earthquakes, tend to be much higher. On the other hand, deductibles for more routine events, like dental work and doctor's visits, are comparatively lower. Your dental insurance deductible may be only $40. Your flood insurance deductible could be $10,000.

Generally speaking, you can expect a higher deductible if you pay a lower monthly premium and a lower deductible if you pay a higher monthly premium.

Deductibles vs. Coinsurance vs. Copays

It's also essential to distinguish deductibles from two other insurance terms: coinsurance and copays. Coinsurance refers to your share (usually a percentage) of the cost of a covered service. The copay is the fixed amount you pay each time you receive benefits.

For example, your health insurance policy could have a $1,000 deductible, a $25 copay for each doctor's visit, and coinsurance requiring you to cover 20% of the cost of generic prescription drugs.

Defend Your Insurance Rights With Help From an Attorney

Your insurance company has a legal obligation to act in good faith. They must abide by your state's insurance laws. Many of these laws seek to protect consumers. After all, you've been paying your premiums and deductibles. You expect the insurance company to live up to its end of the bargain.

Whether you think your claim was unjustly denied or your insurer isn't sticking to the terms of your policy, contact a local insurance attorney. They can explain and defend your rights.

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