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Insurance Deductible

The amount of money on an insurance claim that is paid before the coverage kicks in and the insurer pays

What is Insurance Deductible?

Insurance deductible pertains to the amount of money on an insurance claim that you would pay before the coverage kicks in and the insurer pays. In other words, it’s the money that you would shell out of your own pocket before receiving insurance coverage. After paying your deductible, the insurance company will start paying you the remaining amount of the claim value up to the limits indicated in the policy.

 

Insurance Deductible

 

How it Works

Buying insurance means you get protection against any unexpected risks that can cause losses or damages and put a dent to your finances. It gives you some peace of mind, knowing that there’s something that you can rely on. As for the insurance company, it will provide coverage for damages that can affect you financially, but they will ask you how much of the risk you can cover with your own money.

It’s like making a deal – an agreement that you’ll be protected as long as you agree to pay for the risk you’re willing to cover, which is called the insurance deductible.

It’s up to you how much the insurance deductible will be. In general, if you opt for a higher deductible, it will translate to fewer risks for the insurance company. It reduces the cost of the policy. There’s also such a thing as a minimum deductible.

When you agree to pay a portion of a claim, the insurance company will provide a minimum deductible. If you want to save on insurance costs, you can increase your deductible. However, you cannot make it lower than what the insurance company had set.

Your insurance deductible is stated in the terms and conditions of your policy. Make sure to understand the section fully. If it is not clear to you, ask your insurance company, so you will know how much your deductible is.

 

Example: Car Insurance Deductible

There are two types of deductibles when it comes to car or auto insurance. The first type is a collision deductible, which is for covering the cost of repairs to a vehicle in case of a collision unless you are deemed at fault for the accident.

On the other hand, a comprehensive deductible is reserved for necessary repair work that is not related to a collision. For instance, your comprehensive deductible will be applicable if your car incurs damages due to fallen tree branches after a typhoon.

 

Example: Health Insurance Deductible

Unlike in car or home insurance where the deductible is paid per claim, the deductible in health insurance can be spread out over the year. Bear in mind that not all treatments and visits to the doctor are covered by your insurance deductible.

For instance, preventive care is usually free of charge, while other policies cover primary care physician visits before the deductible is reached. Make sure to read your policy carefully to know which is covered in your deductible.

 

Saving Money with Insurance Deductible

A higher deductible means you will pay more of the claim, so how can you save money? In most cases, years go by, and people do not file claims. It means you can take advantage of lower premiums every year, saving you up to 30% on your insurance.

 

Additional Resources

CFI is the official provider of the Financial Modeling and Valuation Analyst (FMVA)™ certification program, designed to transform anyone into a world-class financial analyst.

To keep learning and developing your knowledge of financial analysis, we highly recommend the additional resources below:

  • Commercial Insurance Broker
  • HMO vs. PPO
  • Indemnification
  • Infinite Banking

Financial Analyst Certification

Become a certified Financial Modeling and Valuation Analyst (FMVA)® by completing CFI’s online financial modeling classes and training program!