What Is an Insurance Deductible and How Does It Work?
If you've ever looked through your insurance policy—whether it’s for auto, home, renters, or health—you’ve likely seen the word “deductible.” But what exactly is it, and how does it affect what you pay? Let’s break it down in simple terms.
What Is an Insurance Deductible?
An insurance deductible is the amount of money you’re responsible for paying out of pocket before your insurance company covers the rest of a claim.
Example:
If you have a $1,000 deductible on your auto insurance and you file a claim for $4,000 in damage, you pay the first $1,000—your insurance company pays the remaining $3,000.
How Do Deductibles Work?
Deductibles typically apply per claim, not annually (except in health insurance, where an annual deductible may apply). The amount is agreed upon when you purchase your policy and can vary depending on the type of coverage.
Higher Deductible = Lower Premium
You pay more out of pocket in the event of a claim, but your monthly/annual cost is lower.
Lower Deductible = Higher Premium
You’ll pay less when you file a claim, but your regular payments will be higher.
Why Do Deductibles Exist?
Deductibles are designed to share the cost of risk between you and the insurance company. They also help prevent small or unnecessary claims.
How to Choose the Right Deductible
When choosing your deductible, ask yourself:
Can I comfortably afford to pay this amount out of pocket in an emergency?
Do I want to reduce my monthly insurance costs?
How often am I likely to file a claim?
If you rarely file claims and have savings set aside, a higher deductible might make sense. But if you prefer predictable expenses and less risk, go with a lower deductible.
Final Thoughts
Your deductible plays a major role in how your insurance works and what you’ll pay when something goes wrong. Knowing how it works—and choosing the right amount—can make a big difference in your overall financial protection and peace of mind.
Need help understanding your policy’s deductible or want to explore your options? CST Insurance Services is here to guide you every step of the way. Contact us for a quick policy review or free quote today!
