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What is a Deductible?

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Kevely Diaz

Answered On Sep 14, 2023

· Answered On Sep 14, 2023

A deductible is the out-of-pocket cost the insured is responsible for before the insurance company pays a claim. The deductible is typically stated in the terms of an insurance policy and is used to deter large volumes of minor claims. 

For example, if a policy has a $500 deductible amount, the policyholder must pay the first $500 upfront costs. If the total claim is $2,000, the insurance company would then pay $1,500. The policyholder’s financial responsibility may be a percentage of the insurance claim or a specified dollar amount.

Deductibles can apply per policy or claim, depending on the insurer and the type of policy. Policies with high deductibles are typically less expensive because the high out-of-pocket expense generally results in fewer small claims.

In health insurance, a deductible is the expenses that must be paid out of pocket before an insurer will pay any expenses. It is usually an annual deductible over which the insurance company starts to pay for care. Furthermore, not all costs count towards the deductible. For example, preventive care services like routine check-ups and vaccinations may be covered before the deductible is met.

In summary, a deductible is a crucial aspect of insurance policies that represents the amount a policyholder must pay before the insurance company begins to cover costs. It serves as a risk-sharing mechanism between the insurer and the insured and can significantly impact the cost of an insurance policy.