"Deductible" refers to a certain amount/ portion of money the insured person needs to pay before his/her insurance provider starts providing the insurance benefits. Health or property insurance companies include a deductible in their insurance policies to ensure that they don't provide benefits on relatively small claims.
1. Straight Deductible: This deductible exists in most personal lines of insurance and applies to each separate loss. For example, if you're involved in 2 separate accidents during the course of a year, your insurance provider will subtract the deductible for each accident.
2. Aggregate Deductible: This type of deductible often exists in commercial insurance and is the total deductible for the specified insurance policy period. For example, suppose, for your business, you opt for property insurance with the total (aggregate) deductible of $5,000. Then, you'll need to cover the 1st $10,000 worth of losses for every policy period, which is usually of a year. This implies that if, during the course of the policy period, your business has 3 separate losses of $2,000, another $2,000 and again$3,000, you'll need to cover $5,000 of its losses but will receive $2,000 from your insurance provider for the last loss. Besides, if your company suffers any more losses within the same policy period, the insurance provider will provide full coverage (compensate for the entire loss).
3. Understanding other types of deductibles: Deductibles in Health Insurance: As far as health insurance is concerned, deductibles can be in the form of time or dollars. Disability insurance policies have a time deductible whereas majority of medical insurance policies tend to have a dollar deductible. In case of disability insurance policies, the insured needs to wait for a specific amount of time after the disability to collect any insurance.
4. Calendar-based deductible: It's the most common type of deductible for major medical contracts and basic medical expenses. It refers to the amount that the insured needs to pay in a calendar year before his/her insurance provider pays anything. Only after the insured person has paid the entire deductible for the calendar year, does the insurance provider start paying for the rest of that calendar year.
5. Corridor deductible: A corridor deductible is so called, as it bridges the 2 policies. It applies to a major medical plan that only covers what the basic medical plan doesn't. In addition, it pays a specific dollar amount.
By opting for higher deductibles, the insured person can pay relatively low premiums. Now that you have the basic idea of what a deductible is, ensure to choose the most suitable insurance policy for yourself.