Deductible

What Does Deductible Mean?

A deductible is an out-of-pocket expense that an insured party must pay as part of their insurance coverage. In the event of a loss, the insured is responsible for covering costs up to the deductible amount before the insurance policy takes effect to cover the remaining damages.

Insurance companies use deductibles to manage costs and discourage excessive claims. By requiring the insured to pay a portion of the loss, deductibles ensure that claims are typically reserved for significant damages rather than minor issues.

Insuranceopedia Explains Deductible

For example, if an insured individual has a car insurance policy with a $2,000 deductible, they must cover the first $2,000 of repair costs after an accident before their insurance will contribute to the expenses. This arrangement means the insurance company avoids covering smaller, more frequent damages.

Deductibles have an inverse relationship with insurance premiums. Policies with higher deductibles typically come with lower monthly premiums. However, individuals opting for a high-deductible policy should ensure they have sufficient savings to cover the deductible in the event of a claim.