Legal Glossary
Deductible
The amount you pay out of pocket before your insurance company starts paying.
Legal Definition
A deductible is the amount of money you are required to pay out of your own pocket toward a covered loss or claim before your insurance policy begins to pay. Deductibles are a form of risk-sharing between you and the insurer. They exist to discourage small, frequent claims and to lower the cost of premiums by ensuring the insured shares in the cost of each loss.
In Plain English
Think of the deductible as the threshold you must cross before insurance kicks in. If your health insurance has a $2,000 deductible, you pay the first $2,000 of medical bills each year entirely out of pocket. After that, your insurance starts contributing (typically through co-insurance). If your car insurance has a $500 deductible and you have a $1,500 accident, you pay $500 and your insurer pays $1,000. Choosing a higher deductible lowers your monthly premium, but means more out-of-pocket cost if something goes wrong. The right deductible balances what you can afford as a monthly expense against what you can afford to pay in an emergency.
Real-World Example
Maria has health insurance with a $3,000 annual deductible. In January, she has emergency surgery that costs $15,000. She pays the first $3,000 (her deductible), and her insurance pays the remaining $12,000 (subject to her co-insurance). When Maria has a follow-up procedure in September costing $2,000, her deductible is already met for the year — insurance pays from the first dollar (subject to co-insurance), because she's already spent her $3,000 threshold.