A deductible is a specified amount of money that must be paid out-of-pocket by an individual or an organization before an insurance policy or benefit plan begins to pay for the covered expenses.
In other words, it is the amount that the policyholder must pay before the insurance coverage takes effect.
Deductibles are a common feature of many insurance policies, including health insurance, car insurance, and homeowner’s insurance. The amount of the deductible is typically set by the insurance company and may vary depending on the type of coverage, the level of risk, and other factors.
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Deductibles are designed to help manage the cost of insurance by shifting some of the financial risk from the insurance company to the policyholder. By requiring the policyholder to pay a portion of the covered expenses, the insurance company can offer lower premiums and still provide coverage for unexpected events.
Types of Deductibles
There are different types of deductibles that can vary based on the insurance policy. Some common types include:
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- Fixed Deductible: A specific dollar amount that remains constant for each claim.
- Percentage Deductible: A deductible expressed as a percentage of the total claim amount. For example, a policy might have a 10% deductible for a covered loss, and the insured would be responsible for 10% of the total claim amount.
- Split Deductible: This type of deductible applies when multiple types of losses or damages are covered under a single policy. Each category may have a different deductible amount.
