We frequently hear “Deductibles” in context of various types of Insurance Policies. Hence, it is important to understand the meaning of deductible while taking an insurance coverage.
Insurance coverage is normally taken as a means of protection against the losses/liabilities arising from various unpredictable events or happenings.

An individual may take insurance coverage for meeting health related expenses, to cover for losses arising out of automobile collisions, or even in the form of life insurance where the benefits under the policy are transferred to the beneficiary on the death of the insured. Not only individuals, even companies also prefer to take insurance policy for their employees, to meet losses that may arise from fire, floods and so on.

Deductible On An Insurance Policy

A deductible represents the minimum amount that a policy holder is required to pay before he/she can file any claim with the insurance company. In simple words, deductible is an expense which the policy holder will have to pay from his/her own finances. For Instance, an individual has taken an automobile collision cover with a deductible of $ 500. In case of an accident falling within the purview of the insurance policy taken by this individual, where the loss or damage is less than $ 500, nothing can be claimed from the insurance company.

Let us assume that as a result of an accident, this individual suffered a total loss of $ 4,000. Here, individual will be entitled to claim $ 3,500 from the insurance company as $ 500 will have to be borne by the individual as a result of the deductible clause.

Deductible Amount

Amount of deductible can vary such as it can be $ 250, $ 500, $ 1,000 and so on. Some times deductible can also be expressed in the form of a percentage of the total loss/damage. In this case, policy holder will have to bear a fixed percentage of the loss/damage before any benefits can be claimed from the insurance company. Deductible amount can also vary by the nature of cover taken. For Instance, a health policy may provide for different deductible amounts in case of health cover for an individual and for a family.

Further deductible may apply in some cases while it may not in some other cases. Hence, insurance policy should be studied in detail, by the policyholder. For Instance, an insurance policy may not require any deductible payment in case of regular visit to a doctor.

Relationship Between Premium And Deductible

To obtain any kind of insurance, an individual has to pay premium which is dependent on the kind of insurance policy taken. Generally premium is payable for the whole year. It is commonly said that higher the deductible lower the premium. Hence, an individual can save on the amount of premium by going in for a higher deductible.

However, it is important to keep in mind, the fact that every time the policy holder will have to bear certain part (as a deductible) before any claims can be made. Therefore, an individual must take into consideration the maximum amount that he/she is willing to let go from his/her own pocket.

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