What is a deductible?

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.