Insurance policies are a necessary tool to protect yourself and your property. However, it isn’t free. In addition to paying a monthly or annual fee, you also pay deductibles. To learn more, here’s an overview of insurance deductibles.
What is a Deductible?
An insurance deductible is an amount the policyholder pays before the insurer takes over. This value is determined at the time the customer selects their coverage. However, it can be changed during the policy’s lifespan.
Deductible Versus Premium Payment
There’s a difference between the deductible and the premium payment. The latter is addressed monthly or yearly to keep the policy active. Conversely, a deductible is paid at the time of service. In other words, when the insurance is utilized.
What Policies Utilize Deductibles
For the most part, all policies require a deductible. This includes insurance for the health, life, auto, home, and business sectors.
How is a Deductible Determined?
As mentioned above, the deductible is determined at the time the policy is chosen. Insurers offer a set of defaults. However, the customer may be offered a chance to offer their own value. In certain policies, such as health and auto, the deductible amount determines the premium. The higher the value, the lower the premium. The opposite applies if the insured asks for a lower deductible.
When Deductibles are Paid
The deductible is paid at the point of service. For instance, the insured would pay a portion of costs for a doctor’s appointment or repairs to their vehicle. In some cases, like auto insurance, this deductible is repaid to the customer if the other party is deemed at fault.
The deductible is paid two ways — incremental and in a lump sum. The former takes place mostly for health insurance. An individual or family must pay their medical expenses until the premium limit is reached. When that happens, their insurance takes over the payments. Lump-sum payments take place for auto or property repairs. Here, the insured pays a portion of the final bill while the insurance company takes care of the rest. If the customer is at fault, then that money isn’t normally recovered. On the other hand, if another party is considered at fault for the damage, then the insurer can request compensation from the other’s insurance representative.