Insurance deductibles: what you pay before, or off, a claim

Insurance deductibles are the part of a covered expense you must pay yourself. In health coverage, that is usually a spending threshold during the plan year; in auto and home coverage, it is commonly subtracted from the payment for each covered loss. Higher deductibles generally come with lower premiums, but require more cash when trouble arrives.

A deductible applies only where the policy covers the service or loss. Read the policy terms, because the amount, timing and exceptions are not uniform across insurance.

How insurance deductibles work by policy type

Health insurance: a plan-year threshold

For covered health services, a deductible is the amount you pay before the plan begins paying. After meeting it, you will usually still owe a copayment, a fixed charge for a covered service, or coinsurance, a percentage of the cost. The insurer pays the remaining covered share under the plan rules.

Health example: Your plan has a $2,000 deductible. You receive covered care and are responsible for the first $2,000 of costs. Once that deductible is met, later covered care may involve a copay or coinsurance rather than you paying the whole cost. A new plan year generally means the deductible applies again.

Details can change the math. A plan may pay for specified services before the deductible; Marketplace plans cover certain preventive benefits in full before it. Plans can also have separate deductibles for prescription drugs, in-network care or out-of-network care. Family coverage often includes both an individual deductible and a family deductible.

Auto and home insurance: usually a per-loss amount

For auto and property claims, the deductible usually reduces the insurer's payment for an insured loss. It commonly applies each time an applicable claim is filed, rather than accumulating across a year. A claim that falls below the deductible can produce no insurer payment.

Property example: An insurer accepts a $10,000 covered home loss, and the policy has a $500 deductible. The calculation is $10,000 minus $500, so the claim payment is $9,500. If a covered repair cost is $400 under that same deductible, you would bear the $400 cost.

Auto and homeowners deductibles generally apply to property damage rather than the liability portion of coverage. In auto policies, deductibles commonly appear with collision and comprehensive coverage. Exact coverage, exclusions and state rules control.

Dollar deductibles versus percentage deductibles

A deductible may be a flat dollar sum or a percentage of the amount insured. The difference can be large on a home policy.

• Dollar deductible: A $1,000 deductible remains $1,000 for an applicable claim.
• Percentage deductible: A home insured for $100,000 with a 2% deductible has a $2,000 deductible. On a $10,000 covered loss, the insurer's payment would be $8,000.

Percentage terms can appear in catastrophe-related property coverage. Hurricane triggers vary by state and insurer and may be tied to an official storm designation, watch, warning or wind speed. Wind and hail deductibles are also commonly percentage-based in places exposed to those perils. Check which event triggers the special deductible, the percentage used and the insurance amount from which it is calculated.

Premium, deductible, copay and coinsurance, side by side

• Premium: The amount paid for insurance coverage, often monthly, whether or not you make a claim or receive care.
• Deductible: Your required share before health coverage generally pays, or the amount taken from a covered auto or property claim payment.
• Copay: A fixed amount for a covered health service, such as a set office-visit charge.
• Coinsurance: A percentage of a covered health bill that you pay, often after the deductible is met.

Choosing a higher or lower deductible

A higher deductible shifts more of the financial risk to the policyholder and generally lowers the premium. A lower deductible reduces the amount due after a covered loss or at the start of covered health spending, while usually raising the premium.

Compare the certain cost of premiums with the deductible cash amount you could realistically cover after one covered event. For health insurance, also examine copays, coinsurance and the plan's out-of-pocket maximum, the ceiling after which the insurer generally pays 100% of eligible bills under the plan.

A five-point deductible check

1. Find the deductible on the declarations page or plan documents.
2. Identify whether it is a dollar amount or a percentage and, if a percentage, the base used to calculate it.
3. Confirm what coverage it applies to: health services, collision, comprehensive, dwelling, contents or another category.
4. Check the clock: per claim, per plan year or a special storm rule.
5. Look for separate deductibles, preventive-care exceptions, and hurricane, wind or hail triggers. Then assess whether the household could pay that amount if a covered event occurred.

A low premium can look tidy until a deductible turns out to be a percentage of a home's insured value rather than the flat amount assumed.

Frequently asked questions

Does a deductible apply every time I file an insurance claim?

For auto and homeowners insurance, deductibles generally apply to each applicable covered loss. Health deductibles generally work over a plan year instead. Policy terms and some state-specific disaster rules can differ.

What is the difference between a deductible, copay, coinsurance and premium?

A premium is what you pay for coverage. A health deductible is what you pay for covered care before the plan generally starts paying; a copay is a fixed service charge, and coinsurance is a percentage of a covered bill. Copays or coinsurance commonly apply after the deductible is met.

How do percentage hurricane or wind/hail deductibles work?

A percentage deductible is calculated from the home's insured value or policy limit, rather than stated as one flat dollar amount. For example, 2% of a $100,000 insured value is $2,000. Hurricane and wind/hail triggers, applicability and percentages vary by state and policy.

How should I choose between a high- and low-deductible policy?

Higher deductibles generally mean lower premiums but leave you responsible for more after a covered loss or during covered health spending. Lower deductibles usually raise premiums while reducing that immediate out-of-pocket exposure. Compare the premium difference with the amount you could afford to pay under the policy's terms.

Sources

• Deductible - Glossary — www.healthcare.gov
• What Is an Insurance Deductible? — www.progressive.com
• Understanding your insurance deductibles - Triple-I® — www.iii.org