Deductible Decoded

Deductible is a term we all relate to insurance.  If you have ever had health insurance, car insurance, or property insurance, then you have most likely dealt with a deductible.  So why is it there?  Almost every type of insurance incorporates a deductible into the policy.  The deductible is the portion of out-of-pocket expense that the insured is responsible for before coverage kicks in.

Insurance companies find that by giving the insured responsibility for the first portion of the coverage they avoid large numbers of trivial claims.  Reducing the amount of payout and claims results in higher savings.  The insurance carriers use those savings to lower premiums for their customers. Insurance is all about risk and when the insurance companies are able to transfer a portion of the risk to the policy holder premiums go down.  You can see this effect when you shop for quotes on car insurance, raising or lowering the deductible changes the premium up or down.

Health insurance companies include deductibles and co-pays to share part of the expense of medical benefits with you.  A co-pay is a fixed amount that you pay at the time you receive a medical service.  The details are laid out in your benefit summary and are included on your medial id card. The deductible is the insured’s out-of-pocket responsibility before medical benefits kick in.

We hear the question “why do I have to pay a deductible if I’m already paying a premium?” quite often and the answer is simple.  The deductible and co-pay help get the insured involved.  If you didn’t have a deductible you would just run to your doctor or hospital where test are conducted, professional’s asses you and medication is prescribed just for a common cold.  With a deductible in place, the insured has to think twice before running to the doctor or hospital for minor issues.  This helps reduce the cost of claims saving the insurance carriers money and lowering premium.   A common deductible in today’s health insurance plans are about $1,500-$3,000 it encourages the policy holder to be smarter and conscious about the medical decisions we make.  If we become a smarter healthier consumer the insurance premiums will go down by saving the insurance carrier money. We have also seen an adverse effect to high deductibles and co-pays.  We find that people will avoid going to the doctor or buying prescriptions to avoid co-pays and deductibles.

For your auto and property insurance the deductible is pretty straight forward.  The deductible applies on claims arising from damage to or loss of the policy holders’ vehicle or property.  If your auto is involved in an accident, regardless of whose fault it is your policies deductible will have to be paid first before your insurance coverage kicks in.  The same with your property, before it can be repaired or replaced a specified deductible that was agreed on must be met.

The deductible is an integral part of insurance and helps maintain the lowest cost possible.  Though not poplar when it comes time for a policyholder to pay it, you will think healthier and drive safer before having to pay your deductible.