You might have heard about a “deductible,” but you can’t really tell what it exactly means. This guide breaks down what a deductible is, how it works, and the types of deductibles.
What Is a Deductible
A deductible is the amount you pay out of your own pocket before insurance actually start covering costs.
Why Deductibles Exist
Deductibles may seem a bit useless except for the fact that you lose money, but they do have purposes:
- They keep insurance affordable. Insurance prices would skyrocket if their service was free.
- They prevent people from making unnecessary claims.
- They split responsibility between you and the insurer.
Besides, compared to the service insurance serves, deductibles are a small price to pay.
How a Deductible Actually Works
You have to pay some of the costs so that insurance pays the rest. For example, your deductible is 300, your medical bill is 2,500, you pay 300, insurance pays the rest.
Types of Deductibles
There are many types of deductibles, but two major types stand out:
- Annual deductible: You pay a certain amount of money every 12 months. This kind of deductible is most common in health insurance.
- Per-claim deductible: You pay this kind of deductible every time you file a claim (common in car insurance.) For instance, if the deductible was 500, and you get into an accident two separate times in the same year, you pay 500 for each accident.
High Versus Low Deductibles
First, let’s see what high deductibles and low deductibles actually mean:
- A high deductible means you pay more out of your pocket, but your monthly premium is lower. High deductibles are good for people who rarely use insurance and want to save money instead.
- A low deductible means you pay less out of your pocket, but your monthly premium is higher. It’s good for people who use insurance often and want to get the most out of their insurance.
Which should you choose?
- Choose a high deductible if you’re healthy, rarely file claims, or want lower monthly costs.
- Choose a low deductible if you prefer smaller “surprise” bills or you expect to use insurance a lot.
When Do You Not Pay a Deductible
- Preventive care. Many health insurance cover routine checks and vaccines without requiring you to pay a deductible. The idea is to encourage people to stay healthy and catch problems early.
- Services fully covered by the insurance plan. Some plans include services or benefits are paid fully by the insurer. You don’t need to pay anything for these services.
- When the deductible has already been met. In annual deductibles, if you already paid that yearly amount, you can walk in confidently, because you already paid that service’s deductible.
- Special situations or exceptions. Some insurance companies waive deductibles in emergencies or specific events. This depends on the policy, but it’s good to know there are exceptions.
Final Thoughts
Understanding your deductible helps you avoid surprise bills and choose the plan that actually fits your needs. Knowing deductibles also helps you troubleshoot if you don’t recognize a charge or think it was a mistake.