How Do Deductibles Work?

A deductible is an annual amount a person pays on an event covered by insurance before benefits kick-in. Home, auto and health insurance products all commonly have deductibles. In general, a higher deductible reduces premium costs for insurance, while lower deductibles reduce out-of-pocket costs, but lead to higher premiums.

On home insurance, people often have deductibles from $500 to $2,000, though higher deductibles are possible. If a storm or other covered event causes damage, the homeowner pays the deductible amount and the insurer pays the remainder. With a $500 deductible and a $5,000 bill, the insurer pays $4,500.

With auto coverage, people typically have deductibles for both comprehensive and collision policies when applicable. Though higher and lower deductibles are possible, the normal deductible range on auto coverage is $250 to $1,000. After a covered accident resulting in a $3,500 bill, a person with a $250 deductible pays that amount while the insurer pays $3,250.

With health coverage, people may have deductibles on various treatments or on hospital-only services. Amounts often range from no deductible up to $1,500. On $3,000 medical bill, a person with a $500 deductible pays that amount before insurance. Some policies also have co-insurances, which means the covered person pays a percentage of the post-deductible balance as well.