What is a deductible?
Learn more about insurance deductibles
If you’ve ever had an insurance policy or are even somewhat familiar with insurance plans, you’ve probably heard the term deductible. Even though it may be a familiar term, many people are still confused on what an insurance deductible is. We’ll try to bring some clarity to this basic insurance concept.
Insurance deductibles… defined
In basic terms, a deductible is an upfront payment that you have to make before an insurance policy “kicks in” to pay. More specifically, an insurance deductible is the specified amount that an insured member must pay before an insurance company will make a payment towards their portion of a claim according to the insurance policy provisions.
So think of it this way. If your insurance policy includes a deductible, this is the amount that you’ll have to pay up front to the doctor, dentist, or repair shop before your insurance plan will pay it’s part of the claim. In the order of payments, deductibles come first, and then insurance payments come afterwards.
Deductibles can affect your monthly premiums
With most insurance policies including medical, dental, auto, and homeowners, deductibles are common insurance tools to help offset the risk for an insurance company. This can also help lower the cost of monthly premiums for the member. Typically the higher the upfront deductible, the lower the monthly premium will be. Conversely, the lower the deductible, the higher the monthly premium can be.
Depending on the type of insurance, deductibles can range anywhere from $50 on some dental plans, all the way up to $5000 or more for some medical plans. Typically the lower the deductible amount, the better it is for the member. Although the member may have higher premiums in order to receive the lower deductible.
Prepare to meet any deductible expenses
If you have insurance plans with deductibles, it’s a good idea to set aside enough money to meet your deductibles if needed. While many insurance events are unexpected, it can be a good thing to have money in savings that you can use to pay your deducible amounts.
Many people call these types of savings rainy day funds. By planning ahead you can help take the stress out of unexpected events that could trigger your insurance deductible.
Deductibles aren’t a bad thing
Even though most people would prefer for an insurance company to simply cover all eligible charges, this would make insurance extremely expensive. Because insurance is a transfer of risk, tools such as deductibles help share risk between an insured member and the insurance company.
As we mentioned before, many insurance plans give multiple deductible options for customers to choose from so they can find the best fit for their situation. One size usually doesn’t fit everyone, so you can often select the best deductible to fit your budget and your expected risk.
Deductibles can be easy to understand
As you can see, deductibles really aren’t that complicated. Just remember you have to pay your deductible first before your insurance plan with pays it’s part.
If you’ve already set some money aside, you don’t even have to worry when unexpected events happen. Then you can meet your deductible and allow the insurance plan to pay it’s portion. It sure is a lot better than having to pay the full bill yourself.
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