Regardless of what type of insurance you’re in the market for, you should familiarize yourself with the world of deductibles to make an informed purchase. Whether you choose a plan with or without a deductible depends on various key factors, including how much you’re willing to pay for your monthly premiums.
A deductible is a fixed amount of money you must pay before your insurance policy kicks in. Deductibles work a little differently, depending on the type of insurance you’re buying. For instance, in health insurance, there’s often a yearly deductible that must be paid. Once this amount is met, your insurance pays for everything else up to the policy’s limits, so you have only the co-pay to pay for when you see your doctor or have any type of procedure done. On the other hand, deductibles for car insurance are on a per-incident basis; so if you get into an accident, you must pay the amount of your deductible toward repairs, and anything above that is covered by insurance. If you get into a car accident again, you will have to pay the same deductible.
A no deductible insurance plan works just like a policy with a deductible, except that when you need to use the policy, you don’t have to pay out of pocket until your deductible is met. The role of a deductible is to keep premiums low. It does this by discouraging people from putting in small claims since they likely won’t want to pay deductibles on such claims.
Pros and Cons
If you don’t have a large amount of cash sitting around in a bank account, you’re likely not going to want a plan with a high deductible or a deductible at all. No deductible plans will ensure the policy pays out even if you don’t have the cash to pay a deductible. On the other hand, no deductible plans come with higher insurance premiums. People often choose deductible or high-deductible plans in exchange for high monthly premiums.
Not all types of insurance policies have deductibles, so sometimes you don’t get to choose between a deductible or no deductible plan. For instance, life insurance policies never have a deductible. That’s because there are never minor incidents; a person either lives or dies, and death is a catastrophic event from an insurance standpoint. The same applies to liability insurance since almost always, such claims are for significant sums of money.
- eHealth Insurance: What is a Deductible?
- This Matter: Insurance Deductibles
- Insurance Information Institute. "Understanding Your Insurance Deductibles." Accessed Aug. 2, 2020.
- Progressive. "What Is an Insurance Rider?" Accessed Aug. 2, 2020.
- HealthCare.Gov. "Out-Of-Pocket Maximum/Limit." Accessed Aug. 2, 2020.
- Travelers. "Home Insurance Deductibles and Limits." Accessed Aug. 2, 2020.
- Allstate. "What Is Zero-Deductible Car Insurance?" Accessed Aug. 2, 2020.
- Mike Leonard Insurance Agency. "One Storm, Two Deductibles. How to Avoid Double Deductibles." Accessed Aug. 2, 2020.
- Hanover Insurance Group. "Understanding Waiver of Deductible Coverage." Accessed Aug. 2, 2020.
- HealthCare.Gov. "Deductible." Accessed Aug. 2, 2020.
- HealthCare.gov. "Deductible." Accessed Aug. 2, 2020.
Cynthia Gomez has been writing and editing professionally for more than a decade. She is currently an editor at a major publishing company, where she works on various trade journals. Gomez also spent many years working as a newspaper reporter. She holds a bachelor's degree in journalism from Northeastern University.