Deductibles Demystified: Simple Guide To Understanding The Costs

Buying an insurance plan offers financial protection, helping you preserve your savings during unforeseen events. When exploring options, understanding insurance deductibles is essential to know how they apply to various policies and the benefits they provide.  

A deductible is a fixed amount you agree to pay yourself before your insurance coverage begins. This concept is commonly used across property, auto, and health insurance policies.

You should pay the deductible amount first when you file a claim. After you pay the deductible, the insurance company covers the remaining costs upto the policy limits and conditions. 

A higher deductible usually leads to lower monthly or annual premiums as you assume the initial financial responsibility.

Deductibles serve several key purposes for both you and insurers:

• They ensure that both the insurer and you share claim-related costs

• Deductibles reduce the likelihood of careless or risky behaviour by making you financially accountable for small losses

• It reduces the instances of minor or unnecessary claim filing, and this results in lower overall costs

Here’s an overview of deductibles in home, auto, and medical insurance plans:

They are a part of the total costs you pay under a health insurance policy. This doesn’t include your monthly premiums. You must first pay the deductible amount each year on covered medical expenses before your insurer begins sharing the costs.

Here’s an example to make deductibles in health insurance clear:

Say you need to be admitted to the hospital for an illness. The total cost of treatment comes to ₹90,000. Your health insurance policy has a deductible of ₹15,000. 

In this case, you’ll have to pay ₹15,000 yourself, while the insurer will cover the remaining ₹75,000 as part of your claim.

You can determine the insurance deductible based on the following factors:

• Pre-existing health conditions before purchasing the policy

• Current health status

• Age 

• History of your past medical conditions

• Your lifestyle habits, such as smoking or alcohol consumption

There are three types of deductibles you can choose from:

A car insurance deductible is the predetermined amount you must pay when claiming coverage before the insurer covers the remaining claim. 

For example, if your policy has a deductible of ₹4,000 and your repair bill is ₹16,000, you’ll pay ₹4,000, and the insurer will cover the remaining ₹12,000. 

Auto insurance deductibles are broadly classified into two categories:

• Compulsory

The current fixed rates are:

• Voluntary

Home Insurance Deductibles

Unlike health insurance, here, you need to pay the deductible for each claim. It can be one of the following types:

Choosing the right deductible can be easier when you keep the following in mind:

• Assess your finances to understand how much you can pay out of pocket when an unfortunate event occurs 

• Analyse if your emergency fund has enough to cover your potential deductible amount before you proceed

• Check your past history of claims to understand if a lower or higher deductible is more suitable 

• Talk to your insurance company’s representatives to get clarity on finding the balance between premiums and deductibles 

What is a deductible in insurance?

It's a fixed or voluntary amount you need to pay as part of your insurance before the insurance company covers the rest. 

How does a higher deductible affect premiums?

A higher initial payment means you will pay more for covered expenses. It will lower the cost burden on the insurance company, which leads to lower insurance premiums. 

How do I decide the right deductible for my financial situation?

If you regularly need coverage, then lower deductibles are better. If your coverage needs are infrequent, you may go for higher deductibles as they result in lower premiums. 

Return to Goal