While each insurance policy is different, the deductible on any type of insurance is the amount of money you have to pay before your insurance company begins paying its part of a covered expense. Insurance deductibles can vary in the way they are calculated, but they usually are a certain dollar amount or a percentage of your overall claim. Under most plans, however, the amount you have to pay toward your deductible within a year's time is usually capped at a certain level.
Many insurance policies—including medical, property, liability, and auto—require you to pay a deductible. Depending on your policy, insurance company, and type of insurance, your deductible can be used for a variety of expenses. For example, if you have a $1,000 deductible and flooding causes $5,000 in damage to your basement, you will have to pay $1,000 toward cleaning up the damage before your insurance company will kick in the remaining $4,000. Similarly, if you have eye surgery that costs $10,000 and you have a $2,000 deductible, you will have to pay $2,000 before your insurance company pays the remaining $8,000.
Generally speaking, your premium—or the amount you pay annually—will cost less if you choose a high deductible plan. While the initial cost savings of a high deductible may sound attractive, it may not save you money in the long run. It is a good idea to consider, for example, whether you can afford to pay the $1,500 deductible on your auto insurance if you get into a car accident that causes $2,000 worth of damage to your vehicle.
Be sure to familiarize yourself with your insurance policy before you actually have to use it, and talk to your insurance company to clarify any terms that you do not understand. Not all medical expenses, property loss, or vehicle damage is covered under insurance policies, so it is important to understand what expenses your deductible will cover and which ones it will not. For more information , see the Lending Tree Web site at http://www.lendingtree.com/smartborrower/Homeowners-insurance/Should-you-increase-your-insurance-deductible.aspx.
