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What is Deductibles in Insurance, It's Meaning, Types & Working Explained

What is an Insurance Deductible?

How does Insurance Deductible Work?

What is the Purpose of Deductible in Insurance?

There are several purposes of a deductible in insurance, and some of them are mentioned in the following section

Sharing Costs

The deductibles allow policyholders to share healthcare expenses with their insurance companies.

Protecting the Insurer

Sometimes, policyholders make fraudulent claims that result in a huge loss for the company. In these cases, the deductibles can protect the company by preventing the loss.

Avoiding Small Claims

Sometimes, policyholders take advantage of their policies and make small claims that are non-beneficial for the company. Hence, companies introduced deductibles to stop policyholders from making small, unnecessary claims.

Types of Deductibles in Insurance

The various types of deductibles in insurance are mentioned in the following section:

Types  Description
Per Admission Deductibles In this type, the policyholder pays a fixed amount of money every time the person is admitted to the hospital.
Comprehensive Deductibles These are quite extensive and include all the covers the policyholder mentions in their policy.
Non-comprehensive Deductibles These only apply to some selective covers mentioned within the policy. 
Compulsory Deductibles These sets of deductibles are mandatory for the policyholder and laid down by the insurance company.
Voluntary Deductibles As the name suggests, voluntary deductibles depend on the policyholder's will, consequently lowering insurance premiums.
Homeowners Insurance Deductibles This category includes deductibles against natural calamities that can damage a home, such as flood insurance deductibles, hurricane insurance deductibles, earthquake insurance deductibles, etc.
High Deductible Health Plans High-deductible health insurance plans require the policyholder to pay more upfront for medical services before the insurance company steps in.
Low Deductible Health Plans In this case, the policyholder is liable to pay less for healthcare services, although they have higher monthly premiums. 

What Happens When the Claim Amount is Less than the Deductible?

Deductibles in Health Insurance

The health insurance sector has deductibles that depend on the policy’s terms and regulations. They help insurance companies reduce small claims and prevent fraud. However, there are two types of deductibles in health insurance:

Compulsory Deductibles Voluntary Deductibles
These are mandatory deductibles, fixed by the insurance companies, that must be paid during each hospitalisation. They reduce the incidence of small claims and motivate the policyholders to save for larger medical expenses. Apart from this, they also prevent fraudulent claims. These are optional deductibles that the policyholder chooses to lower the premium costs. This helps reduce administrative expenses and fraudulent claims. Health conditions and affordability should also be considered when opting for a voluntary deductible. 

Deductibles in Car Insurance

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Compulsory Deductible

The compulsory deductible in car insurance is mandatory for every customer and must be paid. It is a part of the claim, and IRDAI fixes the value for this. Cars with 1500 cc engines have to pay ₹1,000, and cars with engines that are more than 1500 cc have to pay ₹2,000. This does not alter the premium value, as it depends on the car's model or IDV.
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Voluntary Deductible

This category of deductibles is paid according to the policyholder's will. The policyholder decides how much money he wants to pay out-of-pocket to get his car damaged and repaired. This, however, decreases the policy's premium amount.

Deductible in Property Insurance

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  • Deductibles in property insurance are the amount that you, as an owner (whose name is under the policy), pay towards the policy’s claim before the insurance provider pays its part.

    Depending on the type of property insurance the policyholder has bought, there are various types of deductibles seen, and they are:

  • Percentage Deductible: In this case, the deductible is a specific percentage of the total value of the insured property mentioned in the claim. 
  • Flat Deductible: This is a fixed amount that has to be paid no matter how much loss you have suffered. After this value is paid, the insurance company takes over.
  • Time-Based Deductible: This does not include monetary compensation. The deductible amount is measured in time, which is generally a waiting period before coverage starts.
  • Split Deductible: The split deductible is a balanced combination of flat and percentage deductible.

Difference Between Compulsory Deductibles and Voluntary Deductibles

Compulsory Deductible Voluntary Deductible
The excess amount is fixed by the insurer, which the insured will bear in the claim amount. The excess amount is fixed by the insurer, which the insured will bear in the claim amount.
Compulsory Deductible does not affect the premium. Voluntary Deductible affects the premium directly. A higher deductible means a lower premium, and vice versa.
Compulsory Deductible is mandatory and fixed by IRDAI. The policyholder chooses Voluntary Deductible.

Taking a deeper insight into how deductibles play can help manage finances in times of emergencies.

Deductibles in insurance are vital to insurance companies' operations, helping them avoid problems and fraudulent activities. However, customers should be aware of deductibles and their advantages so they have no problem using them when required.

FAQs about Deductibles in Insurance