Basically, a deductible is the amount deducted from insurance claims by insurance company and it represents a risk between insurance company and policy holder. A deductible can be fixed amount or it can be percentage of insurance amount of a policy. Broadly speaking, the higher the deductible amount, the lower will be your insurance premium. The details about deductible amount can be found in declarations page of insurance policies.
Here is how it works when deductible is mentioned as a fixed amount. Consider an example where your insurance policy amount is for $10,000 & $100 is mentioned as deductible from your claim. In such case, if you put a claim worth say, $7,000 then you will receive pay check of $6,900. And in case of claim of $10,000, you will be reimbursed $9,900. So, $100 will be deducted from your pay check irrespective of whether you claim $7,000 or $10,000.
In case your policy has mentioned about percentage deductible, then your claim value will be reduced by the percentage mentioned in the policy amount. So, in above example, if deductible percentage was mentioned as 3% then for the same claim of $7,000, you will be reimbursed $6,790 after deducting $210 as deductible. And similarly you will be deducted $300 if your claim value is $10,000, thereby bringing down your reimbursement amount for claim to $9,700.
Deductibles vary from area to area in same country. In case of hurricane prone areas, deductibles can be higher compared to rest of the area.
Other Aspects of Insurance Deductible
Deductibles for health insurance work differently than that of property or auto claims. Typically annual health policy may have only one annual deductible for the policy compared to auto policy where amount will be deducted on every claim.
If you decide to choose an insurance policy with a high deductible amount, you will most likely have a lower monthly premium & vice-versa. This may not be the case always but true in some type of policies like health insurance etc. in some countries. In some cases, insurance company will require you to pay coinsurance initially until your deductible reaches your out-of-pocket deductible cap for the insured year. Once this cap is reached, your insuring company pays 100% of remaining bills.
The best way to save dollars is to raise the deductible on home owners or auto insurance. However one should be reminded that this amount will be deducted whenever any claim is presented. So, in case of more claims for auto insurance, more amounts will be deducted.
Since insurance company has to strictly follow state laws, quite often it is noticed that deductibles vary from state to state. So, while doing comparison of insurance deductible before purchasing insurance, one must ensure that insurance policies of companies from the same area are compared.
One should also understand from the company if there is any deductible applicable in case of cancelling the insurance policy.