What is insurance deductible?
For a long time, insurance deductibles have been an important part of an insurance contract because of the various and enormous impacts it has on the policy holder. Through the concept of insurance deductibles, the insurance companies have devised a way of sharing risk with the policy holder. But what is insurance deductible? To define an insurance deductible, one must consider the value or impact it has on the policy holder.
An insurance deductible is the financial responsibility borne by a policy holder, whereby he or she pays for any incurred claims or expenses before the insurance company makes payments. Insurance deductibles are simply the amount of money deducted from an insured loss. Insurance companies insert insurance deductibles as a clause when drawing up an insurance contract, so they can form the threshold for policy payments.
An insurance deductible works in a simple way. For example, a client wants to insure his car to the tune of 1000 dollars, and the insurance company fixed the insurance deductible to be 200 dollars. If the car is involved in a crash and the insurance company wants to pay the claims of the policy holder, the policy holder will now pay the deductible of 200 dollars, while the insurance company will pay the rest.
Another scenario can be found in a health insurance policy. If the deductible is 400 dollars, and the claimant is asked to pay the whole 400 dollars as his health bill, the claimant pays the whole 400 dollars. The insurance company pays nothing.
It be calculated in two ways. The first method is by percentages. If the insurance company fixes a particular percentage of each policy as deductible, the insurance company is basing its calculation on percentages. The second method is by basing the calculation of the deductible on a specific dollar amount of the insurance policy. The insurance companies ensure they educate policy holders on these calculations. They also insert them as part of the terms and conditions in the insurance contract, so the policy holder will know what he is signing.
Insurance deductibles apply to all forms of insurance policies. They could be found in insurance contracts involving car, home, health, personal, renters, and other kinds of insurance policies. The way it is applied differs among the different policies. An insurance deductible applied in car insurance differs from one in a home insurance policy. The method of fixing and paying the deductibles are different. For example, a high deductible in an automobile or home policy is favorable to the policy holder. Also, when buying a new house, using the percentage method of calculating it would be more favorable to the policy holder.
Insurance deductibles are an important part of the insurance business. They ensure policy holders share responsibility for any loss. This makes them more responsible. It also creates a buffer for the insurance companies.