An insurance deductible is the amount you must pay out of pocket before your insurance starts paying for covered costs. After you meet that amount, the insurer pays its share, subject to the policy’s limits and rules.

Simple definition

  • A deductible is a dollar amount (or sometimes a percentage) written into your policy that you pay first on a covered claim.
  • Only after you’ve paid the deductible does the insurance company begin paying toward the remaining covered expenses.

Basic example

  • If your car insurance has a $500 deductible and you have $2,000 in covered damage, you pay $500 and insurance pays $1,500.
  • With a $1,000 health insurance deductible, you generally pay the first $1,000 of covered medical bills in a year before the plan starts sharing costs.

Why deductibles exist

  • They reduce small or frequent claims, so insurance focuses on larger, less affordable events.
  • Higher deductibles usually mean lower monthly premiums, while lower deductibles mean higher premiums but less to pay when you file a claim.

How they can be applied

  • Some policies use a deductible “per claim” (common in auto and home), so you pay it each time there is a separate covered incident.
  • Others, especially health insurance, often use an “annual” deductible that resets every year, and once you hit it, the plan pays a portion of additional covered costs for the rest of that year.

Information gathered from public forums or data available on the internet and portrayed here.