Understanding everything you possibly can about your insurance plan is crucial. Knowing the different elements of a given plan can help you know which is the right one for you before you sign up for it, making you better prepared should you need it for an emergency.
One of the most important components to understand about your insurance early on in the process is your deductible. What is a deductible, and how does it affect you as a policyholder?
What Is a Deductible?
The deductible on your insurance is the amount of money on an insurance claim you would pay before the insurance company pays. It's what you'll be paying out of pocket prior to the insurance coverage.
How your deductible factors in depends on the type of insurance. Certain types of insurance have a deductible per claim, while health insurance plans will have an annual deductible. Some specific deductibles require a trigger to take effect, like a hurricane deductible.
What your deductible is will also determine what your insurance premium is; aka, what you are paying (usually monthly) for your insurance. A lower deductible can be helpful in many ways, but keep in mind it also means you'll likely be paying higher premiums.
Often, the deductible on your insurance plan will be a concrete dollar amount, but there are notable exceptions. Some home insurance deductibles are based instead on a percentage of the property's insured value.
Example of How a Deductible Works
In the event of an insurance claim, the deductible will be taken out of the total cost.
Let's say you get into a car accident and it will cost $5,000 to fix. If your deductible is $1,000, it will be subtracted from that total, and your insurance will pay the remaining $4,000. If you end up needing to make another insurance claim after that, your deductible is still $1,000; however, your premiums may rise after multiple insurance claims.
Car Insurance Deductible
The deductible on your auto insurance plan can have many different factors you will need to consider when choosing. Two of the most common types of car insurance are collision and comprehensive.
Collision deductibles are in the event of an accident and are reserved for covering the cost of repairs to your vehicle after a collision (though if you're found at fault for an accident, it won't cover what you'll need to pay for damages to the other vehicle). Comprehensive deductibles are for the required repairs not related to a collision with another vehicle. Let's say a particularly bad storm blows debris and large tree branches around, damaging your car as a result. Your comprehensive deductible would go toward that.
Something to consider with the deductible for your auto insurance is whether you live in a no-fault state. If you live in a no-fault state, your deductible will factor into the cost of the repairs regardless of how the accident happened; if you don't, and you are deemed not at-fault for the accident, some insurance companies won't require you to pay your deductible for the repairs.
Consider all your factors carefully when deciding on your plan and deductible. What is your history with car accidents? How old is your car and what condition is it in? And most importantly, what are you financially able to pay right now in the event of an accident?
Health Insurance Deductible
Deductibles on health insurance plans differ from other deductibles. A car or home insurance deductible is typically per claim, whereas your healthcare deductible can potentially be spread out over the year. That $1,000 deductible for car insurance could be used twice-over for different auto accidents that year, but in healthcare you could spend $200 on one specific medical cost and still have $800 left in your deductible.
Not everything you go to the doctor for necessarily involves your deductible. Preventive care under health insurance is generally supposed to be at no cost to the policyholder, and many plans will cover visits to a primary care physician (PCP) before the deductible is met (though not all do, so read up on your coverage thoroughly).
Also make sure to look into whether your health insurance includes copays - for your PCP, specialists, prescriptions, etc. - in your deductible. This isn't particularly common, but is worth checking. Imagine you get struck with a disease or a nagging injury requiring multiple visits to doctors and specialists, as well as a prescription. That's a lot of expenses out of pockets, and your deductible doesn't even go down as a result.
Whether you have a family on your insurance plan will also dictate the details of your healthcare deductible. In addition to having an overall family deductible, each family member on the plan has an individual deductible of their own that counts toward the family deductible. This can be especially helpful for larger families; if a family of five has a $2,000 family deductible and an individual deductible of $500 per person, the deductible could easily be met before every family member has to pay out of pocket.
You may choose your deductible based on your health history, i.e., a higher deductible if you've rarely needed major medical assistance and don't anticipate needing it anytime soon. But in as unpredictable a field as health, that can be a risky decision. Consider not only your medical history but your financial state extremely carefully to try and make the best choice for yourself.
HDHP: What Is a High Deductible Health Plan?
A high-deductible health plan is, as you already guessed, a health insurance plan with a particularly high deductible. Per HealthCare.gov, the government defines a plan as an HDHP if the individual deductible is at least $1,350 or a family deductible is at least $2,700.
High-deductible health plans can lead to a lot of out of pocket expenses; the upside to it that attempts to offset this are the low premiums HDHP policyholders pay as a result. Still, with so much of your own money being put into medical expenses, a hard look at your financial situation is necessary before enrolling in an HDHP.
With a high deductible health plan, you may also be eligible for a Health Savings Account. With an HSA, you can save money for future medical expenses that will not get federally taxed. According to the U.S. Office of Personnel Management, in addition to the HDHP you cannot be enrolled in another health plan (including a spouse's) or Medicare, not in receipt of benefits from the Indian Health Service or Department of Veteran Affairs in the past three months, and not be covered by a flexible spending account, or FSA.
There are health plans with much lower deductibles available - you may even be able to find one with no deductible. But the premiums on these plans will likely be very high. Finding the right balance between deductible and premium for you or your family is crucial.
A low deductible is something to be strongly considered for someone if they know they will require extensive medical treatment like expensive surgery; the premium will be high, but the expensive treatment will be further covered by insurance.
What Is Coinsurance?
Coinsurance is a factor in your insurance plan after your deductible has been met. The coinsurance is the percentage of an insurance claim that you will pay compared to your insurance.
It's not uncommon for the coinsurance to be 20% for policyholders. So if your deductible has been met and you need $500 worth of repairs to your car after an accident, you will pay $100 and your insurance will cover the remaining $400. However, this number is hardly set in stone, and will vary from plan to plan.