Chances are that when shopping for insurance, be it health, auto, home, or any other type of insurance, you have heard of the term deductible. What does it really mean? Why is it important to know so?
Expressed in common terms, an insurance deductible is set as the amount that you consent to pay out of your own pocket before your insurance takes charge. It is essential in deciding the cost of your policy as well as the assistance you will get in the event of a claim. As a policyholder or an individual comparing insurance policies, it is imperative to recognize deductibles to make intelligent financial choices.
Let us take down what deductible in insurance is, the varieties that may come your way, and how it operates in such categories of insurance.
What is a Deductible on Insurance?
A deductible is a certain amount of money that you have to pay before your insurance provider starts to cover something. The simplest example would be that in case your Rs. 20,000 was your deductible and a claim of Rs. 100,000 is made under your policy, then you will pay the first Rs. 20,000 and the rest Rs. 80,000 will be paid by your insurance company (assuming that the claim is accepted).
Main Things to Remember:
- The deductibles are either on a per-incident basis or an annual basis, depending on the type of policy.
- Increasing the deductibles usually leads to a decrease in monthly payments and vice versa.
- Deductibles may influence the possibility of receiving small damages.
In sum, the deductible insurance scheme promotes cost-effective utilization of coverage and assists insurance companies in managing their fraudulent or unwarranted benefits.
Classifications of Deductibles in Insurance
Deductibles depend on the kind of policy one takes. The differences will give you an idea of which plan suits you best to achieve the desired results.
1. Health Insurance Deductible
This is the most popularly argued type of deductible. It is what you will pay at the end of every year before your health insurance policy kicks in with covering the medical expenses. After you reach your insurance deductible, you may still be charged co-insurance or co-pays.
Example: You are covered by a Rs. 50,000 deductible. You go to the hospital and get billed 70000, Rs. It costs you Rs. 50,000; Rs. 20,000 to your insurer.
2. Auto Coverage Deductible
Collision or comprehensive coverage normally contains deductibles in auto insurance. Once an accident has destroyed your car or damage has been caused as a result of theft, you will be required to pay the car insurance deductible before the insurance company makes a contribution.
3. Home Deductible Insurance
This is also referred to as a homeowners’ insurance deductible, and it comes into play when you are making a claim for damages to your home as a result of an event such as fire, theft or a natural disaster. Deductible can either be a set amount or a percentage of the insured value of your house.
How Does Insurance Deductible Work?
In order to have a better idea of how deductible insurance works, one can imagine the following simplified process:
1. Hit an accident
You can take an example of a road accident where your car is damaged.
2. File a claim
You insure the accident and demand compensation from your insurance company.
3. Pay deductible
You are liable to pay the amounts agreed upon on the deductible before your insurer pays any amount.
4. Insurer covers the rest amount
Once the deductible has been paid, the insurer takes care of the balance for the remainder of the coverage.
Real-Life Example:
- Policy: Health insurance
- Deductible Yearly: Rs. 30,000
- Medical Bill: 100,000 Rs.
- Your bill: Rs. 30,000
- Insurer Payment: 70,000 Rs.
FAQs
Are health insurance premiums tax deductible for small business
Yes, and there are numerous occasions on which small business owners may likewise deduct health insurance premiums as a business-related expense. But it is relative to what your business is and the taxation of a given area. Seek advice from a tax advisor at all times.
What is homeowners insurance deductible?
A deductible on homeowners insurance is the amount of money you have to pay up when lodging an insurance claim for the destruction of your property or home. This is either a set amount in rupees or a percentage of what your home is insured at.
Is life insurance tax deductible?
In most cases, life insurance premiums are not eligible for tax deduction for individuals. But when it comes to a business scene whereby the company is the policyholder as well as beneficiary, there are exceptions which may arise.
How to avoid paying home insurance deductible?
Although you may never be able to side-step paying a deductible after a certain claim has been finalized, you can:
- Select policies that have lower deductibles (although this comes at the cost of expensive premiums).
- Combine the auto and home insurance to save money.
- Keep your property clean so that it does not get damaged.
Conclusion
Insurance deductibles are important when you want to compare insurance covers or when you want to calculate how you are going to cover yourself financially. No matter whether it is health, auto, home insurance or even travel insurance, knowing how deductibles operate can save you from making some poor decisions and being surprised when it is time to submit a claim.
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IGI Insurance develops complete solutions according to your needs. And with an extensive coverage of policies, and a reputable standing in the market, IGI insurance can prepare you to the point where you do not even need to stress about it.
