How Do Insurance Deductibles Work?

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Your insurance deductible is the amount you pay before your insurance kicks in. A higher deductible will lower the total cost of your policy.

Although you don’t want to be forced to file an insurance claim, you will at least get reimbursed for any money you spent.

Not quite.

Your insurance company will subtract your insurancedeductible before it pays you any money.

There are ways to save money when you understand the workings of insurance deductibles. Here are the facts.

What is an insurance deductible?

Your insurance deductible, which is the amount that you must cover yourself before your insurer will pay you back, is what you use to make a claim.

Two ways to write insurance deductible amounts into your policy are:

  • A dollar amount.
  • As a percentage the total amount of the policy.

Different insurance policies apply deductibles differently. For homeowners or car insurance, you will pay a separate deductible for each claim. For health insurance, however, there is only one deductible that covers all claims within a calendar.

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No matter how you apply the deductible, your insurance will begin to contribute as soon as you reach your deductible.

Choosing your insurance deductible

You can adjust your deductible with most coverages, which is a great money-saving tool. A higher deductible can result in a lower premium. This is because you are taking on more risk.

You can save money each month if you don’t file a claim. There is a risk that you will have large out-of-pocket costs if you have to file a claim. It is important to pick a deductible you can afford.

Most types of insurance have a deductible. Although policies without deductibles are possible, they often come with very high premiums.

While there are some cases in which a deductible is not applicable, such as auto liability coverage, most cases will require you to pay something before the insurance company covers the rest.

Health insurance deductible

Your deductible on your health insurance is the amount you pay for covered services before your plan starts paying.

Remember that your annual deductible does not necessarily mean you are free from out-of-pocket expenses. You’re still responsible for any required health insurance copayments or coinsurance on covered services. Most plans have an out of pocket limit, which limits how much you can pay for medical expenses before the rest are covered.

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Family plans may have separate, lower deductibles for each member of the family and a higher, combined deductible for all members. These plans allow insurance to cover covered claims in these situations.

  • A person meets their own deductible. Only that person is covered in this case.
  • The family deductible is the total family expenses. This is the point at which all family members are fully covered, regardless of whether or not they have reached their individual deductibles.

Car insurance deductible

Only certain parts of your auto coverage can have a deductible. Liability car insurance, for instance, doesn’t require a deductible; however, liability coverage pays for only the damage you cause to others, not the damage to you or your own car. Other coverages are possible depending on the state you live in.

Your insurer will determine the amount covered, subtract your deductible, and pay the difference. This process is repeated for every new claim. You will pay the deductible each time.

Different types of coverage — such as comprehensive or collision insurance — each carry their own deductible. Your monthly premium will drop the higher your deductible is.

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Some insurers offer a “disappearing” or “vanishing” car insurance deductible program, which reduces your deductible by a set amount each year you don’t have a claim.

Homeowners insurance deductible

Depending on the deductible you choose, the stakes can be very high when it comes to homeowners insurance.

Deductibles for homeowners insurance can be expressed in percentages or dollars. Your deductible can be expressed as a dollar amount. It is applied to every claim and subtracted from the amount that you receive from your insurance company. The typical homeowners insurance deductible ranges from $500 to $2,000 The typical homeowners insurance deductible ranges from $500 to $2,000. However, a higher deductible will provide month-to-month relief for your premium but you will have to pay more out-of-pocket if you need to file a claim.

Different percentage deductibles work. Instead of paying a fixed amount, you agree that you will pay a percentage, usually around 2%, of the insured value of your home for each claim. Here are some important facts about percentage deductibles.

  • These are often needed for natural disasters like hurricanes, hail, and earthquakes.
  • Even a small amount can add up to big expenses. Let’s assume your home is $300,000. It also has a hurricane deductible of 5%. You would be responsible for $15,000 if your home is damaged by a hurricane.
  • Your deductible will increase if your home’s insured value increases. If you take the above example and increase the insured value to $325,000, with the same 5% deduction, you would now need to pay $16,250 before insurance kicks into effect.
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Be sure to determine if you can afford the deductible.

Depending on where you live, you might be required to purchase flood insurance in addition to your homeowners policy. Although a higher premium may reduce your flood insurancedeductible, it comes with some risks.

Flood insurance policies protect both the structure and contents of a structure. If both were damaged by the flood, the policy would cover both.

Renters insurance deductible

Because your policy covers only you and your belongings, not the physical structure of the building, renters insurance deductibles are always flat dollar amounts. No deductible is required in certain cases, such as when you add valuable items to your policy, or if you have liability claims against others.

Renters insurance quotes tend to be lower than homeowners and thus result in cheaper monthly premiums, so raising your deductible may not have the same impact on your overall savings as it does with other coverages.

Life insurance deductible

This is a simple one: Life insurance policies do not have deductibles. When there’s a “claim” on someone’s policy (that is, the insured person dies), the life insurance beneficiary receives the full benefits with no deductible taken out.

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You can also get a deductible for other types of insurance

Cell phone insurance deductible

Popular carriers such as T-Mobile, AT&T and Verizon offer cell phone insurance plans that carry a deductible for every eligible claim. You can purchase the insurance directly from the provider, or you can get it through your carrier if you prefer.

The deductible may be as high as $249 depending on which provider you choose and the type of phone that you have.

Long-term care insurance deductible

Although long-term care insurance doesn’t have a deductible, it does have an “elimination period” that works like a deductible. The policyholder must pay for the care for a specified period of time (e.g., 90 days) before the policy will pay out.

Pet insurance deductible

Pet insurance policies typically carry annual deductibles, which can range from $0 to $1,000 or more. Higher premiums will be charged if you have a low (or none) deductible.

Insurance companies may have deductibles that are based on the pet’s current condition and not the coverage year. This means that once the deductible is reached, it will not reset no matter what year you file a claim.

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Travel insurance deductible

Travel insurance is often sold as a package that covers several possible predicaments, such as trip cancellation, loss of your baggage and emergency medical treatment. There are many options for deductibles.

Like other types of insurance coverage, raising your travel insurance deductible will reduce the overall cost.