What Is a Deductible in Business Insurance?

How do out-of-pocket costs work?

Copays, deductibles, and coinsurance let you know when and how much you may need to pay for your health care. We’re here to help you understand the meaning of these important health care terms.

What factors should you consider when choosing a deductible?

1. Could you afford a higher deductible in the case of an incident?

What does your emergency fund look like? If you have a $1,000 deductible, you would then have to pay that $1,000 in the case of a claim.

Could you pay that money out of pocket in order to repair your car? If the answer is no, you’ll want a lower deductible to ensure you are not left without in a bind to repair your automobile. If you have that money on hand at any point, it might be worth opting for a higher deductible.

2. What is the payback?

Do the math with your insurance agent. How much would you save on a lower premium if you had a higher deductible? Would you save money that would equate to that deductible in the case of an incident?

For example, lets say that changing from a $500 to $1,000 deductible would save you 10% on your annual premium. Your annual premium for the $500 deductible would have been $800, but with the $1,000 deductible the premium is instead $720.

Now you have an increased deductible by $500, but you are saving $80 per year. That means you would need just over 6 years in order to make up the difference. If you don’t get into an accident in those 6 years, the increased deductible was worth it. If not, you have to pay more out of pocket.

This is a basic form of the math. Working with an insurance advisor will take your other deductible variables into account as well and help you arrive at a better decision. Call (844) 819-2221 to speak with one of our advisors.

3. How often do you have accidents?

If you have a lot of accidents and claims, you’ll want a lower deductible. This means you’ll have to pay out less each time you have a claim.

If you have a good driving record, a higher deductible could work in your favor. You’ll save money on the premiums, which you could use towards your deductible in the case of a claim. For example, a driver who hasn’t had an accident in 20 years might not be scared by the above example of the 6-year time period to make up the difference. They might opt for a higher deductible because they feel they have a lower risk of collision.

4. How risk averse are you?

Ultimately, a higher deductible is a higher risk. The lower your deductible, the more coverage and security you have. How much are you and your family willing to risk?

5. What is the value of your vehicle?

Expensive vehicles cost more to insure. In this case, a high deductible might make sense because you would have higher savings on your premiums.

On less valuable cars, you may not want a high deductible because the cost to repair damage might not equate to your deductible. For example, if you have a $1,000 deductible and your used car needs a total repair of only $600, you would pay that entire amount out of pocket. Your insurance wouldn’t pay for anything.

Additionally, a lower value car will have a lower cost of insurance. In this way, the price difference between a $500 deductible and $1,000 deductible wouldn’t offer significant premium savings.

6. Are you leasing or financing your car?

People who are leasing or financing their car tend to choose a lower deductible. This provides better coverage in the case of a claim. This is necessary for people who don’t own their car, because they are responsible for returning the car in working condition no matter what—with or without the financial help of insurance.

7. Can you mix and match deductibles? 

If you’re a good driver, you might be able to offset costs by having a high deductible for collision and low deductible for comprehensive. This ensures a high line of coverage for unexpected incidents and “acts of God” under your comprehensive coverage. Plus, comprehensive is usually a cheaper coverage policy.

You would offset the raised comprehensive premium cost by holding a higher deductible for collision insurance. Collision policies cover those costs if your vehicle hits a car or other car. If you don’t get in a lot of accidents, you can take the risk with a higher deductible.

Nevertheless, to keep it simple, you may want to hold the same deductible for all types of coverage and cars.

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How deductibles work

For dollar amount deductibles, a specific amount would come off the top of your claim payment.

For example, if your policy states a $500 deductible, and your insurer has determined that you have an insured loss worth $10,000, you would receive a claims check for $9,500.

Percentage deductibles generally only apply to homeowners policies and are calculated based on a percentage of the home’s insured value. So if your house is insured for $100,000 and your insurance policy has a 2 percent deductible, $2,000 would be deducted from any claim payment. In the event of the $10,000 insurance loss, you would be paid $8,000. In the event of a $25,000 loss, your claim check would be $23,000.

Note that with auto insurance or a homeowners policy, the deductible applies each time you file a claim. The one major exception to this is in Florida, where hurricane deductibles specifically are applied per season rather than for each storm.

Deductibles generally apply to property damage, not to the liability portion of homeowners or auto insurance policies. To use a a homeowners policy example, a deductible would apply to property damaged in a rogue outdoor grill fire, but there would be no deductible against the liability portion of the policy if a burned guest made a medical claim or sued.

 

What Is a Minimum Deductible?

A minimum deductible is the minimum amount you’re expected to pay in deductibles for a particular insurance policy. This minimum deductible is set by the insurance company based on the rules of the state they’re doing business in. 

As you’re shopping for insurance, the insurer will state their minimum deductible. You won’t be able to go below that amount but may be able to adjust the deductible higher if you want a lower premium. Insurers vary, but as a rough guide, renters and home insurance minimum deductibles are around $500. Auto insurance minimums are around $200.

The reason insurance companies set a minimum deductible is so they don’t have to take on the financial cost of the whole claim. You’d have to shop around for a long time to find an insurance policy with a zero dollar deductible.

How Does a Deductible Work?

A deductible basically works like this: Let’s say you have a $500 deductible on your car insurance. You get into a minor scrape and need to make a claim with your insurance company.

The company approves your claim, which is for $2,000 worth of repairs. It’s your responsibility to pay $500 toward repairs because that’s your policy’s deductible. The insurance company will cover the rest—in this case, $1,500. Sounds simple, right? 

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Should I have a high or low deductible?

As mentioned, the health insurance deductible may vary from plan to plan. It’s important to take your time to compare plans side by side, since higher plan deductible may be offset by lower cost sharing or premiums, and vice versa. Some plans (typically HMOs) may not have a deductible at all. These plans are referred to as zero-deductible plans. Zero-deductible plans typically come with higher premiums while high-deductible plans typically come with lower premiums.

If you frequently visit doctors or take multiple medications, a zero-deductible plan may suit your budget and coverage needs. If, on the other hand, you’re generally healthy and don’t use medical services often, you may find you’re unlikely to reach your plan’s deductible every year. In that case, it may make more sense to find a plan with a higher deductible if it’s offset by lower monthly premiums. You may find you end up paying less overall this way.

eHealth offers a wide range of individual and family health insurance plans for a variety of budgets and needs. Our plan finder tool makes it easy to browse and compare plan options. Remember, health insurance costs are regulated, so you’ll never pay more at eHealth than you would elsewhere.

Lower Your Healthcare Costs with Subsidies

No matter how high or low your health policy’s deductible is, having the option to lower how much you pay out of pocket can help out any family’s budget. For low-income families, you may be eligible for a health insurance subsidy to help lower the cost of your monthly premiums or out-of-pocket expenses, including your deductible. These subsidies are only available for Affordable Care Act (ACA) plans.

And with the 2021 American Rescue Plan Act now in effect, you could be eligible for a zero-premium silver or bronze plan thanks to expanded eligibility requirements.5

The premium tax credit is a subsidy that helps families making a modest income afford the cost of their monthly health insurance premiums. You can receive this subsidy in one of two ways:

  1. You can have this credit paid to your insurance company from the federal government to help lower or cover the cost of your monthly premiums; or
  2. You can claim the entire amount of credit you’re eligible for in your annual tax return.

In order to be eligible for this tax credit, you must meet these requirements:6

  1. You must have a combined annual household income between 100% and 400% of the Federal Poverty Line.
  2. You must not be eligible for Medicaid, Medicare, CHIP, or TRICARE.
  3. You cannot have access to affordable coverage through your employer’s plan.
  4. You must not be claimed as a dependent by another person.

The Cost-Sharing Reduction is an additional subsidy that helps families making a modest income afford out-of-pocket expenses when receiving health care. This means that when you go for a health service, you can have the amount you must pay in deductibles, copay, or coinsurance lowered or covered.

In order to be eligible for this reduction, you must meet these requirements:

  1. You must have a combined annual household income between 100 percent and 250 percent of the Federal Poverty Line.
  2. You must be enrolled in a Silver-tiered health plan. 

Want to see if you’re qualified for a health insurance subsidy? Get a quote with HealthMarkets, at no cost to you, and see if your family meets the requirements for lower monthly premiums, lower out-of-pocket costs, or even $0 monthly premiums.

What Is the Medicare Part A Deductible?

The Medicare Part A deductible is $1,484 for 2021 and will be $1,556 in 2022. It pays inpatient hospital stays, nursing care, and hospice care. Most people do not pay a monthly premium for Part A coverage. There are no coinsurance costs for hospital stays of 60 days or less.

Comparing Health Insurance Deductibles

As you can see, there's a substantial difference in the monthly premiums of high deductible versus low deductible healthcare plans. However, the real out-of-pocket costs of any plan include the premium, the deductible, and any coinsurance.

The amount anyone pays in out-of-pocket expenses depends on the individual's health profile. A young and healthy person who rarely goes to a doctor might gamble on a high deductible plan with high coinsurance costs. Someone who requires regular treatment for a chronic condition might go for a higher-level plan to minimize deductible and coinsurance costs.

Personal Considerations

If you're in good health and have no health issues, it's possible that you may not even spend enough to meet your plan's deductible for the year. You'd have to consider whether it would make more sense to opt for a plan with a lower monthly premium and a higher deductible.

If you're married, you may also need to compare the deductible for your spouse's health insurance coverage and how much it would be if you opted to add yourself to the spouse's insurance. Depending on how the plan is structured, it may be more affordable to go from single to family coverage.

If you're getting health insurance through the federal marketplace or any of the state marketplaces, you can compare the coverage of four distinct tiers to determine which one is best for you.

Pet Insurance Deductibles

If you’re considering pet insurance, don’t focus on the monthly premium alone. There will likely be other ways the pet insurer is passing costs onto you, such as: The pet insurance deductible, or what you have to pay for vet care before the plan starts paying A reimbursement percentage, like 80%, which is like pet co-insurance

Here’s more on what pet insurance covers.

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