Of all the insurance terms individuals encounter when seeking insurance coverage, the one term that seems to elude the understanding of insurance policyholders is “insurance deductible.”
Yet, it is important to fully understand what an insurance deductible is and how it affects insurance coverage and affordability.
The simplest explanation of an insurance deductible is the one used by the insurance industry: It is the amount paid before coverage actually begins to pay insurance claims. This applies to nearly all types of insurance and includes but is not limited to:
. Health care insurance
. Auto insurance
. Dental insurance
. Renter’s insurance
The deductibles applied to these types of insurances should be clearly defined in the policy’s documentation.
Basically, an insurance deductible is the out of the pocket amount paid before any coverage is applied
Why It’s Important to Know the Amount of an Insurance Deductible
In terms of healthcare and auto insurance, it’s important to know the amount of the deductible prior to filing the first insurance claim.
It is also important to know that the tax-deductible allowance for any out-of-pocket insurance deductibles paid.
Health insurance premiums are considered tax-deductible. This is because these premiums are paid on a monthly basis. Thus, they are classified as medical expenses since they represent out pocket money that is an allowable tax deduction.
Examples of An Insurance Deductible Amount
If an individual requires medical treatment at a hospital and the deductible has not been paid, the individual pays the amount of the hospital expenses out of pocket that meets the insurance policy’s deductible amount.
If the insurance deductible for a given year is $2000 for a family or $1000 for an individual, these deductible amounts are paid out of pocket at which point insurance coverage becomes applicable.
This is also true for auto insurance. If a claim is filed before a deductible is paid out pocket, the claim may be denied or withheld until the deductible amount is paid in full.
It is also important to know that even with federal and state programs like Medicare, a deductible is applied by the Medicare supplemental insurance policy. Medicare covers 80% of medical expenses. The other 20% is paid for by supplemental insurance.
Deductible Amounts Can Increase
Generally, deductible amounts for medical, dental, and auto insurance increase incrementally on an annual basis. It’s wise to check with an insurance agent as to the percentage of the annual increase so that a more accurate assessment of the overall insurance plan coverage can be evaluated comprehensively.
Other Types of Insurance Deductible Applications
Many individuals are confused by the difference between an insurance policy and a discount policy. For instance, many dental insurance policies apply a deductible at the outset of the use of the plan.
A discount policy may not apply an out-of-pocket deductible and instead may opt for monthly payments for six months to a year before dental claims will be paid.
Insurance Terms in Fine Print
Before choosing insurance coverage, take the time to read and compare insurance deductibles. Many individuals find appreciable differences in deductible amounts that affect affordability.