A deductible is a specific amount of money that you, as the policyholder, must pay out of pocket before your insurance coverage kicks in and starts paying for covered expenses. It is a common feature in various types of insurance policies, including health insurance, auto insurance, and homeowners insurance. The purpose of a deductible is to share some of the financial responsibility with the policyholder, encouraging responsible behavior and reducing the number of small or frivolous claims.
- Here's how a deductible typically works:
- Policy Coverage:
When you purchase an insurance policy, it outlines the specific types of losses or expenses that the insurance company will cover. These are regularly called "covered expenses" or "covered misfortunes."
- Deductible Amount:
The policy will also state the deductible amount you are required to pay if you experience a covered loss. For example, if you have a health insurance policy with a $1,000 deductible, you would need to pay $1,000 out of pocket before your health insurance starts covering eligible medical expenses.
- Covered Loss Occurs:
If you experience a loss or incur expenses that fall within the scope of your insurance coverage, such as a car accident (auto insurance), medical treatment (health insurance), or property damage (homeowners insurance), you will have to pay the deductible amount first.
- Insurance Coverage Takes Effect:
Once you have paid the deductible, your insurance coverage kicks in, and the insurance company will start paying for eligible expenses or losses as outlined in your policy.
- Insurance Company's Payment:
After the deductible is met, the insurance company will cover the agreed-upon percentage or the total amount of the covered expenses, depending on the terms of your policy.
For example, if your health insurance covers 80% of medical expenses after the deductible is met, the insurance company will pay 80% of the remaining eligible expenses, and you will be responsible for the remaining 20% (called co-insurance).
It's important to note that deductibles can vary depending on the type of insurance policy you have and the specific terms outlined in your policy. Some policies may have a low deductible but higher premiums, while others may have higher deductibles with lower premiums. The choice of the deductible amount may also affect how much you pay for your insurance policy overall.
Remember that deductibles are typically applied on an annual basis. This means that you will need to meet the deductible amount each policy year before the insurance coverage applies. So, if you've already met your deductible in a particular policy year and you make another claim, you won't have to pay the deductible again until the policy renews for the next year.
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