Deductible

What is it?

A deductible is the fixed amount of money that an insured person must pay out of pocket before their insurance provider starts covering the remaining costs of a claim. It is a common feature in health, car, and travel insurance policies.

Why it exists

Risk sharing: it ensures that the policyholder also contributes to the cost of a claim.
Lower premiums: higher deductibles usually result in lower insurance premiums.
Prevents small claims: it discourages filing very small or unnecessary claims.
Responsible usage: encourages careful use of insurance coverage.

Examples

Health insurance: if your deductible is £500, you must pay the first £500 of medical expenses before insurance pays the rest.

Car insurance: after an accident, you pay the deductible amount first, and the insurer covers the remaining repair costs.

Travel insurance: you may need to pay a set deductible before receiving compensation for lost baggage or trip cancellation.

The risk

While deductibles can help reduce insurance premiums, they also mean the policyholder must pay an initial amount in the event of a claim. It is important to ensure that the deductible level chosen is affordable in case of unexpected expenses.