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Insurance Insights
from Apollo

November 23, 2018 David Dyck

What is an insurance deductible?

David Dyck

Nov 23, 2018

What is an insurance deductible

Insurance deductibles don’t have to be boring. Simply put, the deductible is the amount of money that you, the policyholder, would pay in an insurance claim before the insurance coverage begins paying you. It makes up your portion of the financial responsibility of a claim, and the terms are built into your insurance contract.

Typically, the policyholder will decide the amount of the deductible before a claim gets paid. Once you pay your deductible, the insurance company pays you the rest, depending on policy limits and conditions.

Basics of Insurance Deductibles

This article covers the basics of what an insurance deductible is. The topics are in each of the headers, and include:

  • How deductibles work
  • What a minimum deductible is
  • How to find out how much your deductible is
  • How your insurance deductible can vary
  • Example of how a deductible works

How do deductibles work?

The purpose of insurance is to protect yourself from financial risks from losses or damages. When you buy an insurance policy, you are asking an insurance company to cover your losses if you suffer an unexpected event that could hurt you financially. So the insurance company agrees to cover those losses, but only on the condition that you, the insured, pay for the first part of it, in the form of a deductible.

If your deductible is $400, then that’s the amount that you would pay in the event of a claim, before the insurance company covers the rest of it. When you purchase your insurance policy, the insurance company will tell you how much the policy costs based on how large your deductible is.

What is a Minimum Deductible?

Often, an insurance policy will have a minimum deductible that the policyholder is required to pay before a claim is settled. Sometimes you can increase your deductible, and the cost of the insurance policy will decrease, but if there is a minimum deductible, you cannot decrease it.

How do you find out how much your deductible is?

Your deductible will most likely be listed in your insurance contract, on the declaration page, in the terms and conditions section. If you can’t find it, you should contact your broker or the insurance company.

Do insurance deductibles vary?

Some insurance companies offer zero deductible, or disappearing deductible, depending on some circumstances. But the bottom line is that the lower the deductible, generally the more you typically pay for the insurance policy itself.

You should consider this carefully when buying your insurance policy. It might be tempting to pay the lowest possible price for your policy, which could include a very high deductible. But that might be a bad long-term decision; if you’re unable to afford paying for the deductible, the insurance policy would be pointless.

What is an example of how a deductible works?

Here is a very simple example of how a deductible works in practice.

If you suffer from a loss by theft, and $7,500 worth of items are stolen, and you have a $500 deductible, you would first pay the $500, and the insurance company would pay the remaining $7,000.