Insurance FAQ: What’s A Deductible?

When shopping around for insurance policies, you will likely see the word “deductible” thrown around quite a bit. It might just sound like insurance jargon, but it is actually an important number that can shape what happens to you financially once it’s time to make a claim.

What is it?

A deductible is a financial amount on a policy that represents what the policy holder (you) will have to pay in the event of a claim before the insurance company follows up and pays their part. This number is adjustable, and it is often modified by those in search of savings in order to get lower premiums and monthly rates on their insurance bills. This is why it’s imperative that you study your history with insurance claims to get an idea of whether or not this would be a financially sound move.

An example might also help for some to understand it more clearly. Pretend that you have been involved in a automobile accident, and you have collected $5,000 in medical expenses. The deductible on your auto insurance policy is set at $500. This means that you will need to pay $500 out of your own pocket towards your medical bills before the insurance company pays the remaining $4,500.

If your medical bills amounted to only $500 in that same accident, you would pay the $500 in full, leaving nothing for the insurance company to pay.

What’s the difference between a deductible and co-pay?

Because the words, “deductible” and “copay” seem to mean the same thing, they are actually quite different. A deductible is an amount specified on your insurance policy that you must pay in the event of a claim before the insurance policy follows up and also pays. A copay is an amount that you pay with the insurance company to cover expenses.
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