Deductible

Deductibles share the cost of claims between the policyholder and the insurer. They discourage small claims, which are costly to process, and encourage people to take care to avoid losses.

For example, if your car insurance has a deductible of 500 and you have an accident causing 3,000 of damage, you pay the first 500 and the insurer pays the remaining 2,500. If the damage is only 400, you pay it all yourself and the insurer pays nothing.

There is a trade-off between the deductible and the premium. Choosing a higher deductible usually lowers your premium, because you are taking on more of the risk. Choosing a lower deductible raises your premium.

Some health insurance plans have annual deductibles that apply to the total of all claims in a year, after which the insurer begins paying a share of costs. Deductibles can be a fixed amount or, for some policies such as those covering natural disasters, a percentage of the insured value.

When choosing a deductible, it helps to pick an amount you could comfortably pay from savings if you needed to claim.

Note: In the United Kingdom and some other countries, a deductible is usually called an excess.