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A Deductible Is the First Layer of an Insured Loss

The deductible is the part of a covered claim you pay before your insurer's share begins.
By Charles Joseph · Updated
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A cracked bumper, a $2,400 repair estimate, and an adjuster on the phone explaining that the first $1,000 of it is yours. That first slice — the part insurance never touches — is the deductible.

A deductible is the share of a covered loss you pay before your insurer pays its part. Premiums buy the coverage; the deductible marks where your money stops and the company's begins.

Deductible at a glance

  • You pay it on covered claims; excluded losses aren't covered at any price.
  • Auto and property deductibles typically apply per claim, while health deductibles usually reset each year.
  • Higher deductible, lower premium — the trade runs on how much risk you keep.
  • It isn't your maximum cost: copays, coinsurance, and coverage limits sit outside it.
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How it plays out in a claim

Say a covered repair costs $5,000 under a policy with a $1,000 collision deductible. The insurer pays $4,000, and you cover the first $1,000 — on every claim, every time.

Home policies sometimes swap the flat amount for a percentage on specific hazards like wind or hail. Two percent of $300,000 in dwelling coverage is a $6,000 deductible, which surprises people expecting the familiar $500.

Health plans do it differently

A health plan's deductible usually accumulates across the year: you pay covered costs until you've spent, say, $2,000, and then cost sharing shifts. Coinsurance or copays continue after that until you reach the plan's separate out-of-pocket maximum.

Some services skip the line. Many plans cover preventive care before the deductible, while others apply it to nearly everything.

The premium trade-off

Raising your deductible lowers your insurance premium, because you're keeping more of the small risk yourself. The deal only works if the deductible is money you can actually produce on a bad day.

That's a job for an emergency fund, not a credit card. A $2,500 deductible you'd have to finance at 24% isn't a discount — it's a deferred bill.

The federal marketplace keeps a plain-English definition of deductible for health coverage.

Check every deductible you carry tonight, and make sure that much cash sits somewhere you can reach it.