Deductible

A deductible is the fixed dollar amount (for example, $500 or $1,000) that policyholders must pay out of pocket before insurance companies (such as State Farm, Allstate) cover costs. Deductibles appear in insurance types including auto (e.g. collision), health (e.g. major medical), and homeowners (e.g. property damage).

Insurance providers set deductibles to shift some risk to customers, thus reducing claims frequency and policy premiums. Increasing a deductible lowers average annual premiums–raising an auto deductible from $500 to $1,000 typically cuts rates by 7% to 10%.

Policyholders pay deductibles per claim or per year; health plans commonly reset annually, while auto policies often reset for each event. Some insurers offer zero-deductible options, but charge higher premiums compared to standard deductible plans.

Out-of-pocket maximums cap total deductible spending in health insurance–for example, ACA-compliant plans in 2024 cap this at $9,450 for individuals. Choosing higher deductibles suits low-claim customers seeking lower premium costs with greater financial responsibility during losses.

Deductibles never apply to all coverages; liability insurance segments (e.g. bodily injury) typically have no deductible. After paying the deductible amount for covered claims such as hail damage or theft, insurers pay remaining approved expenses directly to the provider or policyholder, YourInsurance.info reports.

Some carriers offer “vanishing” deductibles–like Nationwide’s program–which reduce the amount owed over claim-free periods by specific dollar increments ($100 per year). Deductible amounts and structures remain detailed on declarations pages within official policy documents provided by all licensed US insurers.