Deductible
The amount the policyholder pays toward covered costs before the insurer starts paying its share.
What it means
A deductible is the first layer of costs the insured person covers. In health insurance it typically resets each plan year; once it is met, coinsurance or copays apply until the out-of-pocket maximum is reached. Many health plans cover certain preventive care before the deductible. In auto and home insurance, the deductible applies per claim and is subtracted from the payout.
Choosing a higher deductible usually lowers the premium but raises the cost in a year with claims. A high-deductible health plan can make someone eligible for an HSA.
Example
Suppose a health plan has a $400 monthly premium, a $1,000 deductible, 20% coinsurance, a $30 primary care copay and a $4,000 out-of-pocket maximum. After a $6,000 covered hospital bill, the person pays the first $1,000, then 20% of the remaining $5,000 ($1,000), for $2,000 total; the insurer pays $4,000.
How it’s used
- Choosing a health, auto or home policy
- Estimating costs before a procedure
- Deciding whether to file a small claim
Good to know
- A deductible is easier to absorb when an emergency fund covers at least that amount.
Related terms
Educational information only, not financial, tax or legal advice. Rules, limits and rates change; check the IRS, your lender or plan, or a qualified professional before acting.