What Is Insurance Deductible

What does deductible mean in insurance terms?

Deductibles are the tax-deductible expenses subtracted from adjusted gross income. Deductibles reduce taxable income and thereby reduce the tax liability. A deductible is also the amount paid out-of-pocket for covered expenses before an insurance company will pay the remaining costs.

Why do insurance policies have deductibles?

Insurance policies have deductibles for behavioral and financial reasons. Deductibles mitigate the behavioral risk of moral hazards. A moral hazard describes the risk that two parties to an agreement or contract may not act in good faith.

What is the difference between deductible and premium?

The deductible is the amount of money you'd have to pay out of pocket before the insurance company will pay for services. The premium is the amount you pay for having the coverage. To illustrate a comparison, with a car insurance policy, you pay a monthly or yearly bill for the coverage. This is called the premium.

What counts toward your health insurance deductible?

Your deductible is a fixed amount you have to pay each year toward the cost of your health care bills before your health insurance coverage kicks in fully and begins to pay (if you're enrolled in Medicare, the Part A deductible is based on benefit periods rather than the calendar year).

What Is Insurance Deductible

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