What is a deductible in insurance? This is a famous question that is asked by so many people who are interested in purchasing insurance policies. A deductible is one of the so many components that are commonly found in insurance. You need to know what it is before purchasing any insurance policy.
A deductible is a specific amount that must be paid by the policyholder before the insurance policy pays the claim. A deductible is serving as a deterrent to large numbers of insignificant and small claims. Deductibles may apply per claim or per policy, depending on the policy type and the insurance company.
What Is A Deductible In Insurance And General Usage?
In general usage, the deductible is a term that can be used in order to describe one of many clauses’ types that are used by the insurance companies as the policy payments’ threshold. In the insurance policy, the deductible is an amount that the policyholder must pay before the insurance provider pays any expense.
Usually, the deductible is used to deter the huge number of claims which the consumer can be expected reasonably to bear the cost of. The coverage is restricted to significant events to incur large costs. This allows the insurance company to pay out much less frequently and in slightly smaller amounts.
As a result, the insurance premiums become cheaper when they involve the higher deductibles. For example, the health insurance company can offer plans with low deductibles and high premiums or high deductibles with low premiums.
When Is A Deductible Provided?
Once you found the answer for ‘what is a deductible in insurance, it is time to learn about when it is provided. Deductible usually is provided as clauses in the policy of insurance that dictate the amount of insurance covered expense that is borne by the holder of the policy.
A deductible is usually quoted as the fixed quantity and is a part of many policies that are covering losses to the holder of the insurance policy. The insurer will become liable for the claimable expenses which exceed the amount.
Depending on the insurance policy, deductibles can apply per year or per covered incident. For some insurance policies where the incidents are not easy to delimit, such as health insurance, the deductible is usually applied per year.
Understanding What Is A Deductible In Insurance Program
Some deductibles are set by the insurance company based on the claim causes. For example, one housing insurance policy can contain various deductible amounts for damage or loss that is caused by fire, evacuation, natural calamities, theft, and so on.
Some policies also offer deductible reimbursement programs. This program will reimburse the deductible in case there is a claim for automobile insurance, home insurance, health insurance, yacht, or boat insurance.
Difference of Deductible And Franchise
Deductible and franchise in insurance are two things that are completely different. the deductible represents the part of an expense for which the company of insurance isn’t liable. And the franchise is the pure threshold beyond which the liability for all expenses is moved to the company of insurance.
For example, if the franchise is USD 20,000. Any claim under the amount, up to USD 19,900 will be entirely borne by the holder of the insurance policy. And any claim above the amount, starting from USD 20,100 will be entirely borne by the insurance company.
What is a deductible in insurance and its difference from the franchise? A deductible is an expense’s part that the insurer isn’t liable for. But the franchise is a threshold. Any expense beyond the liability will be transferred to the insurance company.
Difference Between Deductible And Excess
Excess is also totally different from the deductible. From the details above, you can understand ‘what is a deductible in insurance’. But what do you know about excess? Excess is a word that can refer to two different terms in insurance.
1. Excess post hospitalization
These are the extra costs that are borne by the insured over the maximum coverage that is paid by the insurance company. The excess term here is especially common in insurance areas that are sensitive to loss, such as liability insurance.
Excess post-hospitalization is addressed by the market of insurance through the insurance companies’ excess line through mechanisms like excess insurance, umbrella insurance, and gap insurance.
2. Excess pre-hospitalization
This one is an insurance exception that is often interchangeably yet wrongly referred to as a deductible or an excess. It is the very first claim amount which the insured must bear. If the insured person has an excess of USD 400 but the entire repair costs USD 3,400, the insured needs to pay USD 400.
The insurance company is going to pay the remaining USD 3,000. However, you need to note that the different meaning between deductible and excess doesn’t apply in the British term.
Deductibles in Various Types of Insurance
Deductibles can be found in so many insurance types, including property insurance, automobile insurance, travel insurance, health insurance, commercial insurance, and industrial insurance. Below are some details about deductibles in various insurance types.
1. Deductible in commercial and industrial insurance
In industrial risks, there is a deductible that is expressed as the loss percentage. This is similar to co-insurance where the company will pay losses in a certain percentage and coupled with maximum and minimum payment thresholds.
For example, if the deductible is 10% with the maximum of USD 5,000 and a minimum of USD 1,500, the claim of USD 25,000 will incur a deductible of USD 2,500. The resulting payment will be USD 22,500.
2. Deductible in travel and health insurance
Some travel insurance policies and many health insurance policies also have deductibles. Health insurance deductible types can vary as well, just like the family amounts and individual amounts. The medical treatment nature makes the insured person often face several medical expenses.
That’s why health insurance deductibles usually are imposed on a term basis like annually instead of per visit threshold. However, the major medical policies may have excess per visit that often doesn’t cover the routine visits cost to the GP.
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What is a deductible in insurance? All details about deductibles in insurance can be found on this page. Make sure you understand this insurance term before purchasing any policy.
