Deductible: Difference between revisions

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{{RefimproveMore citations needed|date=January 2009}}

In an [[insurance]] policy, the '''deductible''' (in British English, the '''excess''') is the amount paid

[[Out-of-pocket expenses|out of pocket]] by the policy holder before an insurance provider will pay any expenses.<ref>{{cite book |lastlast1 = O'Sullivan |firstfirst1 = Arthur |authorlinkauthor-link = Arthur O'Sullivan (economist) |first2 = Steven M. |last2 = Sheffrin |authorlink2author-link2=Steven M. Sheffrin |title = Economics: Principles in Action |url = https://archive.org/details/economicsprincip00osul |url-access = limited |publisher = Pearson Prentice Hall |year = 2003 |location = Upper Saddle River, New Jersey |page = [https://archive.org/details/economicsprincip00osul/page/n540 524] |isbn = 0-13-063085-3}}</ref> In general usage, the term ''deductible'' may be used to describe one of several types of clauses that are used by insurance companies as a threshold for policy payments.

Deductibles are typically used to deter the large number of claims that a consumer can be reasonably expected to bear the cost of. By restricting its coverage to events that are significant enough to incur large costs, the insurance firm expects to pay out slightly smaller amounts much less frequently, incurring much higher savings.{{factcitation needed|date=November 2015}} As a result, [[insurance premium]]s are typically cheaper when they involve higher deductibles. For example, health insurance companies offer plans with high premiums and low deductibles, or plans with low premiums and high deductibles. One plan may have a premium of $1,087 a month with a $6,000 deductible, while a competitive plan may have a premium of $877 a month with a $12,700 deductible. The consumer with the $6,000 deductible will have to pay $6,000 in health care costs before the insurance plan pays anything. The consumer with the $12,700 deductible will have to pay $12,700.<ref>[httphttps://money.cnn.com/2013/11/21/news/economy/obamacare-affordable/ How 'affordable' are Obamacare plans?] By Tami Luhby, CNN, November 21, 2013</ref>

Several deductibles can be set by the insurer based on the cause of the claim. For example, a single housing insurance policy may contain multiple deductible amounts for loss or damage arising from theft, fire, natural calamities, evacuation, etc.

== Vs.Difference from franchise ==

A deductible should not be confused with a franchise. Where aA deductible represents a part of the expense for which the insurer is not liable, but the franchise is a pure threshold that,beyond when exceeded, transferswhich liability for the ''entire'' expense is transferred to the insurer. For example, with a franchise of $20,000, a claim of $19,900 is borne entirely by the policy holderpolicyholder, and a claim of $20,500100 is borne entirely by the insurer.

== Vs.Difference from excess ==

The first is '''excess-Excess post-hospitalization''' which refers tois the extra costs borne by the insured over and above the maximum coverage that the insurance company pays. This terminology is especially common in areas of insurance sensitive to loss (like [[liability insurance]]) and is addressed by the insurance market through [[Insurance#Insurance companies|excess line insurance companies]] through mechanisms likesuch as [[excess insurance]], [[gap insurance]], and [[umbrella insurance]].

The second is '''excess-Excess pre-hospitalization''' which refers tois an insurance exception that is (often interchangeably but wrongly) referred to also as an '''excess''' or a '''deductible'''. It is "the first amount of the claim which the insured has to bear. If the insured has an excess of $500 and the total repair costs $3,000, then the insured has to pay $500 while the insurer pays the remaining $2,500."<ref name="Vehicle Owners FAQ">From Vehicle Owners FAQ on Singapore's Auto Insurance: http://www.vehicleowners.com/FAQExcessFreeInfo.php {{Webarchive|url=https://web.archive.org/web/20130504013629/http://www.vehicleowners.com/FAQExcessFreeInfo.php |date=2013-05-04 }}</ref>

In a typical [[automobile insurance]] policy, a deductible will applyapplies to claims arising from damage to or loss of the policy holderpolicyholder's own vehicle, whether thisthe damage/ or loss is caused by [[car accident|accidents]] for which the holder is responsible, or by [[vandalism]] andor [[theft]]. Depending on the policy, the deductible may differ based onby the type of expense incurred that triggers the insurance claim.<ref name="Vehicle Owners FAQ"/>

Third-party [[legal liability|liability]] coverages including auto liability, general liability, garagekeepersgarage keepers, inland marine, professional liability and workers compensation are also written with deductibles. Thesethe deductibles on commercial liability policies are known as third -party deductibles or liability deductibles. Because the insured and claimant are not the same entity, insurers cannot pay the claim minus the deductible. ThisThat creates a receivable owed from the insured to the insurer. Due to theThe complexity of identifying these third -party deductible receivables, often causes many areto oftenbe missed by the insurer causingand millions of dollars to go uncollected.<ref>{{cite news |first=Joseph |last=Warnagiris |authorlink= |title= Collecting Third Party Deductibles |url=http://www.propertycasualty360.com/2009/02/02/collecting-third-party-deductibles|work=|publisher= Claims Magazine |date= February 2009|accessdate=}}</ref>

Given theThe nature of medical treatment, makes the insured often facesface multiple medical expenses spread over several days for a single illness or injury. Due to this reasonTherefore, health insurance deductibles often tend to be imposed on a term basis (e.g. annually), asrather opposed tothan a per- visit threshold.<ref>[http://www2.ups.edu/humanresources/2006_benefits/Benefits2006-FAQ.htm#co-payments What is the difference between co-payments, coinsurance, and deductibles?]</ref> In spite of thisHowever, major medical insurance policies may have a per- visit excess, which often does not cover the cost of routine visits to a GP, unless it is certified to be a part of a continuous treatment, (and the bills can be collated in a single claim).

In industrialIndustrial risks itcommonly is also common forhave the deductible to be expressed as a percentage of the loss, often though not always, with a minimum and maximum amount. ThisThat is similar to [[co-insurance]], wherein which the company pays a certain percentage of the losses, coupled with minimum and maximum payment thresholds. For example, with a deductible of 10% with a minimum of $1,500 and a maximum of $5,000, a claim of $25,000 would incur a deductible of $2,500 (i.e. 10% of the loss), and the resulting payment would be $22,500. A claim below $15,000 would incur the minimum deductible of $1,500, and a claim above $50,000 would incur the maximum deductible of $5,000.

*{{cite news |first=Joseph |last=Connelly |authorlink= |title= Homeowner's Insurance & the Claims Process - Radio Interview March 3, 2008|url=http://www.lisamacci.com/thejusticehour/archives.html|work=WPBR - The Justice Hour with Lisa Macci |publisher= |date= March 3, 2008|accessdateaccess-date=2008-06-27 }}

*{{cite news |first=Joseph |last=Warnagiris |authorlink= |title= Collecting Third Party Deductibles |url=http://www.propertycasualty360.com/2009/02/02/collecting-third-party-deductibles|work=|publisher= Claims Magazine |date= February 2009|accessdate=}}