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Deductible

A deductible is the amount of money a policyholder must pay out of their own pocket before their insurance coverage kicks in and starts paying for covered expenses.

Example #1

For instance, if you have a health insurance plan with a $1,000 deductible and you need medical care that costs $2,000, you will need to pay the first $1,000 before your insurance starts covering the remaining $1,000.

Example #2

Similarly, in auto insurance, if your policy has a $500 deductible and you get into an accident causing $2,000 in damage to your car, you would pay the first $500, and then your insurance would cover the remaining $1,500.

Misuse

Misuse of deductibles can occur when insurers set excessively high deductibles, making it challenging for policyholders to afford necessary care. This can lead to people avoiding seeking medical attention or essential services due to the financial burden.

Benefits

One benefit of a deductible is that it can help lower insurance premiums. By agreeing to pay a higher deductible, policyholders can often secure a lower monthly premium, making insurance more affordable.

Conclusion

Understanding how deductibles work is crucial for consumers to make informed decisions about their insurance coverage. It's essential to strike a balance between a deductible that fits your budget and a premium that you can afford. High deductibles can protect against misuse by ensuring that insurance is used for significant expenses, while lower deductibles may provide more immediate financial relief in case of a claim.