Deductible
Plain English
A deductible is the part of a covered claim you pay yourself before insurance pays the rest. The Texas regulator's example: on a $1,000 claim with a $300 deductible, the insurer pays $700. Deductibles can be a dollar amount or a percentage of your coverage, and a higher deductible usually means a lower premium.
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Definition
A deductible is the amount a policyholder must pay out of pocket toward a covered loss before the insurer pays the remaining amount, up to the policy's coverage limit. Deductibles can be a flat dollar amount, like $500 or $1,000, or a percentage of the insured value, common on some homeowners policies for certain perils. Choosing a higher deductible generally lowers the premium, since the policyholder is absorbing more of the small-to-moderate losses themselves.
Why It Matters
The size of your deductible directly shapes both your monthly cost and your out-of-pocket exposure when something happens. A high deductible can make sense if you have savings to cover it and want a lower premium, but it can also mean a claim doesn't feel worth filing for smaller damage, which changes how you actually use the policy you're paying for.
Real-World Example
Say a home insured for $300,000 has a $1,000 deductible for most claims and a 2% wind deductible. A kitchen fire causes $12,000 of damage, so the insurer pays $11,000. A windstorm causes $15,000 of roof damage; the 2% wind deductible is $6,000, so the insurer pays $9,000. A $100 deductible on a car's comprehensive coverage means a $900 windshield claim pays $800.
Personal vs. Commercial
For individuals: Choosing a deductible is often a trade-off between monthly affordability and having enough savings set aside to cover the deductible amount if something actually happens.
Common Misconceptions
- People often assume the deductible applies once per policy period no matter how many claims they file, but many policies apply it separately to each individual claim.
- Some assume a deductible is a fee paid to the insurance company, when it's actually the policyholder's own share of the loss, not a payment to anyone.
- People sometimes think a lower deductible is always better, when it typically means a higher premium every single year, whether or not you ever file a claim.
- Auto policies are often assumed to have one deductible, but many separate collision and comprehensive deductibles, which can differ from each other.
Key Takeaways
- A deductible is what you pay first; the insurer typically covers the remainder up to your coverage limit.
- Raising your deductible usually lowers your premium, and vice versa.
- Small claims below your deductible amount are usually not worth filing.
- Auto and homeowners policies may have different deductibles for different types of covered events.
Frequently Asked Questions
What is an insurance deductible?
The amount of a covered claim you pay yourself. Triple-I: it's "the amount of money that you are responsible for paying toward an insured loss."
What does a $1,000 deductible mean?
On a covered $5,000 claim, you pay the first $1,000 and the insurer pays $4,000. If the damage is under $1,000, the insurer pays nothing.
Can a deductible be a percentage?
Yes. Triple-I says a deductible can be a specific dollar amount or a percentage of the total amount of insurance, common for wind and hurricane deductibles.
How is a health insurance deductible different?
With health insurance, it's what you pay for covered care before the plan starts to pay; after that you usually pay copays or coinsurance.
Where do I find my deductible?
On your policy's declarations page. You may have different deductibles for different coverages.
Related Terms
Related Coverages
- Auto Insurance
- Homeowners Insurance
- Health Insurance
Related Scenarios
Explore the rest of the Core Insurance category.
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The factual claims on this page were checked against these sources. Rules and figures change, so check the source itself if you need to confirm the current version.
- tdi.texas.govHome insurance guide · Texas Department of Insurance
- iii.orgUnderstanding your insurance deductibles · Insurance Information Institute (Triple-I)
- healthcare.govDeductible (glossary) · HealthCare.gov (Centers for Medicare & Medicaid Services)
- content.naic.orgSearching for a Homeowners Insurance Policy? Tips to Get the Most Value · National Association of Insurance Commissioners
Educational information, not advice: This page is for general education only, not legal, financial, or insurance advice. Actual coverage, discounts, and requirements depend on your policy’s wording, your insurer, and the laws of your state. Confirm specifics with your own insurer or a licensed agent before making a decision. Insurpedia does not sell insurance and does not recommend specific insurers.