What Is a Deductable?

A deductible is a term used primarily in insurance to indicate a monetary amount that must be met before the insurance kicks in. The amount must be paid out of pocket by the person insured before the insurance company begins paying.

Deductibles are also known as out-of-pocket expenses. They are used to prevent insurance companies from having to pay trivial costs in health care, car and property insurance. In effect, this allows insurance companies to charge less for a higher deductible and more for a lower deductible.

In health insurance, the insured pays the full amount of their medical care until the yearly deductible is met. Once that deductible is met, the insurance company begins paying, but they do not always pay 100 percent. Usually, the insurance company has two types of service. One covers 100 percent of costs after deductible, and the other covers 100 percent after a set copay. For example, an insurance plan has a $20 copay for medical office visits after deductible. The patient pays 100 percent of the cost of these visits until the deductible is met. Then the patient only pays $20 for each visit, and the insurance company pays the rest. However, car and property insurance policies do not generally have copays.