A deductible is something that is most associated with insurance policies. It is important for anyone who is choosing many types of insurance to understand what a deductible is and how it affects them. If an insurance policy does come with this type of clause then it could mean that if you have a need to make a claim you might not be entitled to anything back.
What Is a Deductible?
In the basic terms, a deductible is an amount of money that the person with the insurance will be expected to pay before they can make a claim from the policy. In some parts of the world this is also referred to as an excess; it is the portion of an insurance claim that the policy doesn’t cover. Until this amount of money has been paid out of the insured individual’s own pocket the insurance coverage doesn’t come into effect. It is probably going to be a lot easier to understand this by way of an example.
Imagine that you have health insurance and the policy stipulates that there is a deductable of $600. If the first time you need to make a claim on the insurance the bill is less than $600 you will need to pay for it yourself. Once this money has been paid though, you will then be entitled for full coverage from that moment on. So even if your bill is for a small amount you will still be able to claim. Of course if your initial bill is over $600 the insurance company will make up the difference. If it is less than $600 then the amount that you still have to pay will be carried over to the next time you make a claim.
Deductibles in the Real World
The example given above of how deductibles work is quite simplistic; things can be a bit more complex in the real world. There are many different ways that deductibles can work and it is important to understand what it means for your particular insurance policy. With a lot of car insurance policies the deductable will only apply to the policy holder’s own vehicle; so if they are involved in an accident the damage to the other car will be completely covered but the deductable might be there for damage to the insured party’s car. With health insurance there may be deductibles in relation to certain types of treatment; for example routine visits to a doctor might not be covered by the policy.
Deductibles are common practice in the world of insurance and there have been many arguments used to justify them. One of the most debated claims is that a deductable is there to prevent a ‘moral hazard‘. For instance, the insurance company might argue that if there was no deductable for routine visits to the doctor that people would end up seeking their advice for every sniffle and minor complaint. This would mean that the insurance company was needing to pay a lot of money when it wasn’t really needed.
