Demystifying Deductibles

Deductible – What is it?
A deductible is the amount that an insurance policy holder (such as yourself) must pay before the insurance company pays anything.

For example, if you have a travel health insurance plan and must see a doctor for $100 and buy medication for $225 while travelling, your total insurance claim would be $325. Depending on your insurance policy, you may get a total refund of $325 from your insurance company, or a partial refund (a % of $325) or a total refund minus a deductible. Let’s say you have a $200 deductible, then you must pay the first $200 on any claim before the insurance company will pay for the rest (in this case you would pay $200 and the insurance company would pay $125). Certain deductibles such as those for vehicle insurance are applied to every claim submitted while others such as those for many health plans are applied annually to the first claim only.

To further illustrate the concept, let us take a common example from auto insurance. If you have a car accident, you usually pay a deductible for any repairs. If your auto insurance policy has a $500 deductible then you will have to pay $500 and the insurance will cover the rest of the cost of the repairs. If your repairs cost $3000, then you will pay $500 and the insurance company will pay $2500. If your cost of repairs are under $500 ($400 for example) then it is not worthwhile for you to make an insurance claim, because your deductible is more than the repairs. In this case, it would be cheaper for you to pay for a $400 accident than to pay the deductible of $500.

When choosing an insurance plan, be sure to consider the cost of the deductible, the amount of coverage and the premium. The premium refers to your regular payments for the policy. Often, if you choose a policy with a higher deductible, you will have a lower premium.

Travel Insurance
For travel insurance you may find a plan that has no deductible. This means that your travel insurance plan will cover the entire cost of any medical bills during your trip. However, there are often limitations to the amount of your coverage. For example, you may be covered for up to $3000 for a private registered nurse, up to $1000 for accidental dental work, etc.

For some policies there is no deductible unless you are over a certain age. For example, there may be no deductible for those under the age of 54 but a $200 deductible for policy holders who are 55 or older. The reason being that statistically there is more risk involved for insurance companies to insure policy holders over the age of 54.