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The Meaning of Deductible in Insurance

What does deductible mean in an insurance policy? It’s the amount of a claim you’re responsible for, before the insurance company starts paying their share of the costs.

In auto insurance coverage, you can select a plan with a $1,000 deductible. This would mean that if you had a collision where the damage would cost $5,000 to repair, the insurance company would pay $4,000, while you would have to pick up the rest.

If you had a minor accident with a scratch that would cost $500 to repair, the insurance company wouldn’t have to pay anything. You should collect the repair costs yourself.

In health insurance, the deductible is one of three methods the policy can use to share costs. (The others are copayment and coinsurance)

Health care costs build up over time instead of a single incident, so you’ll typically find your deductible listed as “Calendar Year Deductible” (or CYD). When defined this way, it means your bills start at $0 on January 1st and build up to the end of that year.

It would be unfortunate to develop a major health problem and end up in the hospital on New Year’s Eve. If you had not yet met your deductible in the senior year, you may have two deductibles to meet. One for services before midnight, and one for the costs of the new calendar year.

You may find a policy that starts counting the deductible from the date your coverage begins and accrues during the policy year instead of the calendar year, but that’s rare.

Also uncommon is a plan that will allow you to roll back your deductible from the end of the previous year to help you in the event that you experience the New Year’s Eve scenario.

Sometimes you will find a clause in a health policy where the definition of deductible is “per admission” or “per occurrence”. The per-admission deductible would mean that a new deductible would apply each time you go to the hospital, while “per-event” would likely apply to each emergency room visit.

Typically, health insurance policies that offer office visits for a co-pay allow you to use this reduced rate before you meet your calendar year deductible.

The higher your deductible, the lower the risk to the insurance company and the less you will have to pay in premium costs for the coverage. On the other hand, lower deductibles mean higher premium costs for you.

So which is better, a low or high deductible? If the annual premium savings is greater than the difference between the deductibles, the higher deductible is better.

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