What is a deductible?

A deductible is the fixed dollar amount you pay out of pocket on a covered claim before your insurance company begins paying. Higher deductibles lower your premium; lower deductibles raise it.

How a deductible works

When you file a covered claim, you pay the deductible first — the insurer covers the remainder up to your policy limit. For example, if your deductible is $1,000 and a covered loss totals $6,000, you pay $1,000 and your insurer pays the remaining $5,000. The NAIC Glossary of Insurance Terms describes a deductible as the portion of an insured loss paid by the policyholder before the insurer's obligation begins.

Deductible types across policy lines

Health insurance: You pay the deductible before the plan shares costs. Preventive care is often exempt and covered before the deductible is met.
Homeowners/renters insurance: A flat dollar deductible applies per claim. Some policies use a *percentage* deductible for perils such as hurricanes — calculated as a percentage of the home's insured value.
Auto insurance: Collision and comprehensive coverages each carry their own deductible. Liability coverage typically has no deductible.
High-deductible health plans (HDHPs): The IRS sets annual minimums for a plan to qualify as an HDHP, making it eligible to pair with a Health Savings Account (HSA).

Deductible vs. premium trade-off

There is a direct inverse relationship between deductible and premium: a higher deductible reduces the premium you pay each period, while a lower deductible means higher premiums. The right balance depends on your ability to absorb an out-of-pocket cost at claim time and how frequently you expect to file claims. This is a personal financial decision — no single answer fits all situations.

Key facts on deductibles

For health plans, the deductible is the amount you pay for covered services before your insurance plan starts to pay its share. — NAIC
Some homeowners policies use percentage deductibles for named perils (e.g., hurricanes) — a 2% deductible on a $300,000 home is $6,000 before the insurer pays. — NAIC
The lower the deductible, the higher the policy premium — and vice versa. This trade-off is consistent across health, auto, and property insurance. — NAIC — Glossary of Insurance Terms

Key takeaways

A deductible is what you pay on a claim before insurance starts paying.
Higher deductibles = lower premiums; lower deductibles = higher premiums.
Different policy types (health, auto, home) structure deductibles differently — some flat-dollar, some percentage.
For health insurance, many preventive services are covered before the deductible is met.