Deductible

The amount of cash payment that is made by the insured (the homeowner) to cover a portion of a damage or loss. Sometimes also called "out-of-pocket expenses. " For example, out of a total damage claim of $1,000, the homeowner might pay a $250 deductible toward the loss, while the insurance company pays $750 toward the loss. Typically, the higher the deductible, the lower the cost of the policy.

In an insurance policy, the deductible (also known as 'excess' in some countries, especially the United Kingdom) is the portion of any claim that is not covered by the insurance provider. It is the amount of expenses that must be paid out of pocket before an insurer will cover any expenses. The first commercial insurance deductible was introduced by Norman Baglini in 1952. It is normally quoted as a fixed quantity and is a part of most policies covering losses to the policy holder. The deductible must be paid by the insured, before the benefits of the policy can apply. Typically, a general rule is: the higher the deductible, the lower the premium, and vice versa. In a typical automobile insurance policy, a deductible will apply to claims arising from damage to or loss of the policy holder's own vehicle, whether this damage/loss is caused by accidents for which the holder is responsible, or vandalism and theft. Third-party liability coverage generally has no deductible, since the third party will likely attempt to recover any loss, however small, for which the policy holder is liable. Most health insurance policies and some travel insurance policies have deductibles as well. The type of health insurance deductibles can also vary, as individual amounts and family amounts. Major medical insurance policies are known for often having a deductible which does not cover the cost of routine visits (e. g. to a doctor's office). For example, a person might have an auto insurance policy with a $500 deductible on collision coverage. If this person were in an accident that did $800 worth of damage to the car, then the insurance company would pay him or her $300. The insured is responsible for the first $500 of damage (the deductible), and the insurance company pays the balance. In industrial risks it is also common for the deductible to be expressed as a percentage of the loss, often though not always, with a minimum and maximum amount, for example 10% of loss minimum $1,500 max $5,000. Therefore in the event of a claim totalling $25,000 the applicable deductible is $2,500 (i. e. 10% of the loss), meaning that the insured would receive an indemnity payment from the insurer of $22,500. If the claim only amounts to $7,500 then the applicable deductible is $1,500 and not 10% of the loss, since 10% is below the minimum deductible level. Similarly, in this instance, for losses above $50,000 the deductible will never be more than $5,000. Deductibles can also differ depending on the cause of the claim: the same policy can contain varying deductibles which are applied to loss or damage arising from theft, fire, natural perils, etc. For example, a plastics factory may have a deductible of $10,000 for theft, $50,000 for natural perils and $100,000 for fire. A deductible should never be confused with a franchise, the latter representing a threshold which needs to be exceeded in order for the insurer to be liable for the entirety of the claim. In other words, with a franchise of $20,000 a claim of $19,900 is borne entirely by the assured whereas in the event of a claim totaling $20,500 the insurer would be liable for the whole amount. There are also deductible reimbursement programs that reimburse a deductible in the event of an auto, home, or health insurance claim.