Deductible

A deductible is the first part of a covered loss that you pay yourself. On a property claim, the insurer commonly subtracts it from the settlement or pays only the covered amount above it, according to the NAIC (opens in a new tab). A higher deductible moves more of the initial cost to you and may come with a lower premium, an amount the insurer or agent has to quote.

How a deductible changes what you are paid

Take a home with $250,000 in covered reconstruction costs after a loss. With a $500 fixed deductible, the insurer pays $250,000 minus $500, which is $249,500, and you carry the $500. With a 2% deductible on a $250,000 insured dwelling amount, the deductible is $250,000 × 2%, or $5,000, and the insurer pays $245,000, according to the NAIC Post-Disaster Claims Guide (opens in a new tab).

A percentage is calculated from the base the policy states, such as the dwelling limit, not from the repair bill. You can also owe amounts that have nothing to do with the deductible, such as depreciation under actual-cash-value coverage, excluded damage, an amount above the policy limit or a noncovered service. A covered loss that does not exceed the deductible may produce no payment.

Types of deductibles and what each changes

The type decides how much you pay and how often.

• Fixed dollar. A stated amount such as $250, $500 or $1,000 comes off a covered loss. The Connecticut Insurance Department (opens in a new tab) gives $500 and $1,000 as higher homeowners options.
• Percentage. A percentage applies to the policy limit or another stated insured value. In New York, windstorm and hurricane deductibles commonly range from 1% to 5% of the dwelling value, according to the New York Department of Financial Services (opens in a new tab).
• Per claim, occurrence or event. The deductible applies to each qualifying claim or event, and the policy decides whether several losses are combined.
• Annual health deductible. You pay covered costs up to the deductible each plan year before the plan begins its normal cost sharing, and a family plan can carry both an individual and a family deductible, according to HealthCare.gov (opens in a new tab).
• Separate deductibles. A policy can use different amounts for collision and comprehensive, in-network and out-of-network care, prescription drugs, or wind, hail, hurricane and earthquake losses. Wind and hail deductibles in Texas are often higher than other homeowners deductibles and may be a percentage, according to the Texas Department of Insurance (opens in a new tab).
• Aggregate. A commercial policy can apply a deductible across a group of losses.

Where you will see a deductible

Auto policies usually attach deductibles to collision and comprehensive coverage, according to the NAIC (opens in a new tab). Homeowners forms such as the HO-3 apply the deductible to Section I property losses, and the insurer pays only the part of the loss that exceeds the amount shown in the Declarations, according to the sample ISO HO-3 form (opens in a new tab). Condo unit-owners and renters policies commonly use one for personal property, and health, pet, flood, earthquake and commercial policies also use deductibles, in forms that vary by contract.

The amount usually appears on the quote, binder, declarations page, renewal notice, claim estimate, Summary of Benefits and Coverage or explanation of benefits, and the policy or plan explains when it applies.

In health plans, a copay is a fixed amount for a covered service and can apply before or after the deductible. The out-of-pocket maximum is the most you pay in a plan year for covered services, and premiums, balance-billing amounts and noncovered services generally do not count toward it, according to HealthCare.gov (opens in a new tab).

What Connecticut and New York change

In Connecticut, an insurer can impose a hurricane deductible instead of the overall policy deductible on personal-risk property policies, certain condominium association master policies and unit-owners' association property policies. The rule applies when the National Hurricane Center issues a hurricane warning for any part of the state and the hurricane produces sustained winds of at least 74 miles per hour in any part of Connecticut, under Conn. Gen. Stat. § 38a-316a (opens in a new tab). Specified individual health policies must cover preventive care and screenings for people age 21 or younger with no deductible, copayment or coinsurance, subject to statutory qualifications, under Conn. Gen. Stat. § 38a-498b (opens in a new tab).

In New York, a homeowners or dwelling-fire policy with a hurricane deductible must show both the percentage and the dollar amount on the declarations page, near the ordinary deductible and with equal or greater prominence, under Insurance Regulation 159 (opens in a new tab). A notice is also required at issuance and renewal, and N.Y. Insurance Law § 3445 (opens in a new tab) authorizes the trigger standards and notices.

Questions to ask an agent or insurer

1. What exact coverage does this deductible apply to, and does another deductible apply to wind, hail, hurricane, flood, earthquake, collision, comprehensive, prescriptions or out-of-network care? A policy can contain separate deductibles.
2. Is it a fixed dollar amount or a percentage, and what amount is the percentage based on? 2% of a $250,000 dwelling limit is $5,000.
3. Does it apply per claim, occurrence, event, person, coverage part, policy year or calendar year? The frequency sets the total you can pay.
4. Which health services are covered before the deductible, and which payments count toward the out-of-pocket maximum? Preventive care, copays, coinsurance and premiums are treated differently.
5. How much would the premium change at a higher or lower deductible, and what would I owe right after a covered loss? The premium difference depends on the policy.

Frequently asked questions

Four short answers on how the amount works in practice.

What does a $1,000 deductible mean?

You are responsible for the first $1,000 of a covered loss subject to that deductible. A $10,000 covered property loss would generally produce a $9,000 payment before limits, depreciation or exclusions.

Is a deductible paid to the insurance company?

On a property claim, the amount is usually subtracted from the settlement rather than paid separately. In a health plan, members generally pay the provider the covered allowed costs until the deductible is met.

Does a deductible count toward the out-of-pocket maximum?

For health plans, deductible payments for covered services generally count toward the out-of-pocket maximum, according to HealthCare.gov (opens in a new tab).

Does liability insurance have a deductible?

Standard personal auto liability and many personal liability insurance coverages do not use the same deductible structure as physical-damage coverage. The coverage and its policy wording decide.