What is an insurance deductible?

Key points

• A deductible is the amount of money you are responsible for when it comes to an insured loss or expense. You either have to pay this amount out of pocket, as with health insurance, or it will be deducted from your claims check, as with car insurance. 
• Insurance deductibles are either a fixed dollar amount or a percentage of your coverage that reset for each claim or annually.
• Raising your deductible can help you save on the cost of insurance.

What is a deductible in insurance?

An insurance deductible is the amount of money an insurer will subtract from your insurance check when you make certain types of claims, such as some car insurance and homeowners insurance claims. In the case of health insurance and pet insurance, it’s the amount you have to pay before your insurer will start to pay its portion of covered expenses.

How insurance deductibles work

The exact way an insurance deductible works varies by insurance type. But in each case, the deductible you choose will directly affect your premiums, or the amount you pay for insurance.

Choosing a higher deductible usually lowers your premiums, but requires you to be responsible for more of the cost of covered claims before your insurance company starts to pay. “It’s how risk is shared between you and your insurer,” advises Mark Tucker, an Allstate Insurance agent.

Here’s how deductibles for different types of insurance work. 

Car insurance deductibles

When you buy car insurance, you can choose your comprehensive and collision deductibles if you purchase these coverage types. You can select the same deductible or a different deductible for each coverage. Common deductible options include $250, $500 and $1,000. 

Personal injury protection (PIP) and uninsured/underinsured motorist property damage coverage also carry deductibles. If your state requires you to have uninsured motorist property damage coverage, there is usually a mandated deductible from $100 to $1,000. Hit-and-run claims may have a separate deductible. 

Tucker provides the following example for car insurance deductibles: If you have a $1,000 comprehensive insurance deductible and a hailstorm causes $10,000 worth of damage, the insurance company will give you a check for $9,000 to cover repairs. 

But if your vehicle damage is only $800, the insurance company won’t issue a claims check because your damage is less than your $1,000 deductible. Filing a claim that is lower than your deductible or close to it can have a negative impact on your future car insurance rates.

There is no deductible for liability insurance. If you cause an accident, your insurance company will pay the other party and you pay nothing for the claim.  

Homeowners insurance deductibles

When you buy homeowners insurance, you select a deductible, such as $500, $1,000 or $2,000. Like car insurance, the amount you choose is how much your insurer will deduct from a claims check.

If you choose a $1,000 deductible and file a $5,000 claim for fire damage to your house, your insurer will cover $4,000 and you will be responsible for the remaining $1,000 worth of repairs. 

Depending on your insurance company and where you live, you may also have a separate deductible for damage resulting from hurricanes or severe convective storms. 

• Hurricane deductible: This deductible can apply to damage caused by high wind or heavy rain from a named storm. Hurricane deductibles are typically much higher than a regular home insurance deductible. 
• Wind/hail deductible: If you have a separate wind/hail deductible, it applies when heavy winds, rain or hail that aren’t from a named storm damage your house.

With homeowners insurance, you may have the choice between a fixed dollar amount, a percentage deductible or both on the same policy. For instance, you might have a fixed dollar deductible as your standard deductible but a percentage deductible if you file a hurricane or wind/hail claim.

A fixed dollar amount gives you the option to select the exact amount you want to be responsible for, advises Steve Wilson, director of technical underwriting at Hippo Insurance. Percentage deductibles, typically 2% to 5%, “are based on the Coverage A value of your home,” or the cost to rebuild your house.

There’s no deductible for homeowners liability insurance. Suppose someone sues you after falling and injuring themselves on your property, and they win. In that case, the insurance company will send them a check for the settlement amount, up to your liability limit. You will only be responsible for any amount that exceeds the policy limit.

Health insurance deductibles

Your health insurance deductible is the annual out-of-pocket amount you are responsible for paying before your health insurance company pays its share. If your plan covers more than one person, there is usually a per-person deductible and a family deductible, which applies to all covered family members. 

Coinsurance

Your health care plan could have a fixed deductible and a percentage deductible called coinsurance. After you meet the fixed deductible, you may be responsible for a percentage of covered claims. 

For example, if you have a $1,000 deductible and 20% coinsurance, you would pay the first $1,000 of covered medical care. After hitting your deductible, let’s say you have a $200 office visit. With 20% coinsurance, you’ll pay the doctor $40 (20% of $200), and the insurance company will cover the remaining $160.

Copayment

The copay is a fixed amount you pay for an eligible medical service, such as a doctor’s visit or trip to urgent care. 

Your copay amount may be different for certain services, such as if you’re seeing your regular doctor or a specialist, having a lab test done or picking up a prescription. 

Copays and rules vary by insurer and plan. For instance, with some plans, your copay may count toward your deductible. 

In general, the lower your insurance premium, the higher your deductible and copay will be.

Pet insurance deductibles

A pet insurance deductible is the amount you pay for veterinary care before your insurance company starts to reimburse you for eligible vet expenses. 

Most pet insurance companies offer a fixed annual deductible between $50 and $1,000. But some carriers have a per-incident or per-condition deductible, which is a separate deductible you meet for each condition during the policy lifetime.

Let’s say your dog has an illness that costs $500 to treat. 

• With an annual deductible of $250, you’d pay $250 toward the $500 vet visit, then your pet insurance company would cover a percentage of the remaining $250. When you buy pet insurance, you can often choose that reimbursement percentage — from 70% to 100% depending on the plan — in addition to choosing your deductible. If your dog later breaks a leg (in the same plan year) and needs a $2,000 surgery, your pet insurance will cover a percentage of the full amount, without first subtracting a deductible. 

• With a $250 per-incident deductible, you’d pay $250 for the vet visit for your dog’s illness. If the illness recurs or requires a follow-up visit, you would not need to meet the deductible again. But if your dog later needs that $2,000 leg surgery, you’d have to pay the first $250, because it would be treatment for a different condition.