Published: | Updated: September 24, 2017

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Definition - What does Deductible mean?

A deductible is an out-of-pocket fee that an insured needs to pay as part of their insurance coverage. If an insured has a loss, they need to pay up to their deductible limit first before their insurance policy will cover the rest of the damages.

Insurance companies use deductibles as a way to keep their costs down and to prevent policy holders from making excessive claims. Because an insured needs to pay the deductible when making a claim, this helps ensure that claims are only made to cover large losses.

Insuranceopedia explains Deductible

For example, if an insured has a car insurance policy with a $2,000 deductible, they would need to pay for the first $2,000 of any repairs themselves after an accident before their insurance would pay for anything. This means that the insurance company is off the hook when it comes to smaller damages, which tend to occur more often.

Deductibles have an inverse relationship with the price of an insurance policy. The larger the deductible on a policy, the lower the monthly premium will be. However, if an insured signs up for a policy with a large deductible, they should make sure to have more money saved up to pay for the deductible should they need to make a claim.

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