A deductible is an insurance term that refers to the amount someone with an insurance policy must pay out of their own pocket before their insurance company will contribute to the cost of covering a claim.
Deductibles are common across a variety of insurance policies, including automobile, health, renters insurance, and homeowners insurance.
The Purpose of Deductibles
The overarching purpose of a deductible is to split the cost of covering a claim between the insured and the insurance company. This is sometimes referred to as “cost-sharing.” By requiring that a policyholder be responsible for paying a threshold amount before insurance coverage kicks in, insurance companies can minimize the risk of people filing frivolous or fraudulent claims.
Deductibles can also lower premiums because insurance policies with higher deductibles tend to have lower monthly premiums and vice versa. For example, an insurance policy with a $1,000 deductible is likely to have a lower monthly premium than an insurance policy with a deductible of $250.
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How Deductibles Work
Essentially, deductibles require insurance policyholders to pay a certain amount upfront. Once that amount has been paid over the course of a specific timeframe (usually a year), the insurance company will begin paying on an approved claim up to the amount of the policy limit.
Depending on the specific policy, deductibles can work in different ways.
In general, deductibles work something like this: If a car insurance policy has a $500 deductible and you file a claim for $2,000, then you will pay for the first $500 as a deductible and the insurance company will pay the remaining $1,500.
Car Insurance
Auto insurance policies tend to have deductibles for fixing property damage as part of collision and comprehensive coverage policies. Liability coverage, on the other hand, typically doesn’t have a deductible, meaning that if someone is at fault for a car accident and they have liability insurance, they won’t have to pay anything to fix the other person’s vehicle.
Health Insurance
While car insurance tends to have a per-incident deductible, health insurance policies tend to work on an annual basis. This means that a policy will set a deductible for the year and the insured must cover the out-of-pocket cost for any services sought before insurance pays for anything. There may be exceptions to this, especially for necessary services like preventative care.
Homeowners Insurance
People with renters or homeowners insurance can expect to have either a fixed-price deductible or a deductible as a percentage of the claim. It’s important to weigh the various pros and cons of these options before selecting a policy. Note that fixed-price deductibles may have higher premiums, but these policies can also provide more peace of mind.
Deductibles vs. Insurance Copays
The insurance industry has various technical terms to be familiar with, and it can get overwhelming for the average layperson. There is sometimes confusion between the terms “deductible” and “copay.”
While a deductible is something that is usually charged on an annual basis and must be paid before insurance covers any cost, a copay is a percentage of payment that is due each time a service is rendered. An example of a copay is paying $20 for each doctor’s visit, regardless of what the deductible is or how many times someone goes to the doctor.
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Deductibles and Personal Injury Claims
In personal injury claims, the at-fault party (also known as the defendant) is typically on the hook for damages, including reimbursement for lost wages, medical expenses, and other forms of compensation. Because deductibles are not common in liability insurance, the at-fault party typically won’t pay a deductible when their insurance covers the victims’ costs.
However, if blame is shared in a state that follows a comparative negligence standard, then a partially at-fault party may also lean on their insurance company to write a check. In situations like these, a deductible may apply.
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Insurance Companies and Bad Faith
Personal injury claims are merely one instance where an insurance deductible may apply. As noted above, there are a variety of situations where an insured will request that their insurance company pay out for a claim.
Things can get complicated when there is a disagreement between the amount that the insured thinks should be paid and the size of a check dispersed by the insurance company. Because insurance companies are required to act in good faith, a bad faith insurance lawyer may be contacted to ensure that these companies play by the rules.
If an insurance company fails to comply and act in good faith, the insured can file a lawsuit. As the plaintiff, the insured can work with their attorney to present evidence that the insurance company acted in bad faith and collect damages accordingly.
Signs of Bad Faith by an Insurance Company
An insurance company acts in bad faith when it demonstrates dishonest or unfair conduct in handling a claim. In practice, this looks like the insurance company is trying to get out of its obligation to pay what it should from a moral and contractual basis.
Signs of bad faith by an insurance company include:
- An unreasonable denial of a claim
- Delaying payment
- Submitting a lowball settlement offer
- Providing false or misleading information about a policy
- Lack of communication with the insured
- Failing to defend the insured when legally obligated to do so
When a policyholder suspects that their insurer acted in bad faith, they should seek legal assistance to bring these accusations against the insurance company.
Stand Up for Your Rights by Contacting a Bad Faith Insurance Lawyer
In terms of deductibles, an insurance company may act in bad faith to avoid paying beyond the deductible or failing to correctly apply the deductible. Alternatively, they may accuse the insured of not meeting their annual deductible when they in fact have.
When bad faith is detected, it’s important to act quickly to preserve evidence and seek compensation for money that is legally owed. Accident Hotline can provide legal representation for bad faith claims across the country.
To request a free consultation, contact Accident Hotline at (844) 343-9609.
For a free consultation, call 844-343-9609