All You Need to Know About Deductibles in Insurance

Few people are familiar with or particularly attuned with insurance deductibles. The best way to define an insurance deductible is the sum of money that is deducted when a claim is made for any insurance policy — depending on the provider you select and the insurance for which you are filing a claim; this could be either health insurance or auto insurance.

According to Statista, the average health insurance deductible has risen from $917 to $1763 between 2010 and 2022. It’s surprising that most Americans have never even heard of the term “deductibles,” as highlighted by a survey on CNBC. The same survey also shows that people find it challenging to define the four key terms used in insurance terminology: deductibles, co-pays, co-insurance, and out-of-pocket maximum.

Why There Are Deductibles and Where Do They Apply

Deductibles are a shared responsibility between the policyholder and the insurer, with each party contributing significantly to paying for the costs and preventing insurance fraud. For instance, the policyholder might pay for their hospital stay while the insurance provider covers the rest of the care-related costs. Avoiding paying claims with lower pay-outs is another justification for including deductibles in insurance policies.

Reduced insurance premiums are another benefit of having a deductible in your insurance policy. Simply put, this means that while you pay lower premiums each period, you must pay a large deductible when filing an insurance claim. The rules and regulations governing how these deductibles operate and how claims are processed in the event of a disaster vary by state in the US.

There are basically two ways in which these deductibles work and are engaged within your policy.

  • Percentage Deductible: When a certain percentage of the policy has to be paid as the deductible irrespective of other factors. 
  • Fixed Amount Deductible: A fixed amount is deducted from the overall insurance money that has to be paid at the time of claim.

In a different context, deductibles can be categorized as being paid per incident or annually. When it comes to paying per incident, if a person is involved in two accidents of the same kind, they are responsible for paying for the first one, and the insurance company pays for the second. A policy with an annual deductible requires the insured to pay a one-time payment at the start of the year before the insurance policy kicks in.

To avoid having to pay any deductible when claiming the insurance amount, a policyholder may also select a zero-deductible insurance policy.

Generally, policies such as health insurance, property insurance, etc., have deductibles, whereas when it comes to home insurance, policyholders do not need to pay a deductible for liability claims. For example, almost all policies at Gonzalez Insurance come with no liability deductibles, making our policies highly beneficial for all. A small deductible is only ever mentioned in your policy under exceptional circumstances or as a policy requirement.

Implications of Deductibles

A National Bureau of Economic Research study highlighted a case study where, when a company moved from a free to a high-deductible insurance model, there was a reduction in employee healthcare spending of over 13%. A serious effect of high-deductible insurance plans is the underutilization of healthcare services.

The National Library of Medicine has, however, highlighted some benefits of deductible introduction in the insurance sector, including improved financial profitability of the entire insurance segment. The economy is put at risk, and the resources are exploited when insured individuals use the service for low-value tasks. Therefore, the government employed the concept of deductibles to guarantee that the appropriate people receive the services they require.

When it comes to individual policyholders, paying deductibles may entail purchasing supplemental insurance before they can even use their insurance. This can be a little worrisome and heavy on the pockets.

It is obvious that adding deductibles to your policy has advantages and disadvantages, but there are ways to do away with them. The policy should be chosen, and deductibles should be added, depending on your needs or any chronic illnesses you may have because that is what sets the tone of your insurance claims and deductibles to be paid.

Gonzalez Insurance is a highly customer-focused insurer because we provide the best insurance plans with no deductible liability. Get a personalized quote from us for a wide range of policies and save money on high deductibles. Get in touch today.