Deductible
A deductible is the fixed dollar amount (or percentage of the claim or insured value) that a policyholder must pay out of pocket before the insurer pays the remainder of a covered claim, up to the policy limit.
How a deductible works
Suppose your home insurance has a $1,000 deductible and a covered storm causes $6,000 of damage. You pay the first $1,000; your insurer pays the remaining $5,000. If the damage had been $800 — less than your deductible — you would pay the full $800 and the insurer would pay nothing.
This is why it is generally not worth claiming for small losses that are close to or below your deductible: you absorb the cost either way, and making a claim may affect your no-claims bonus or future premiums. Our guide to deductibles and out-of-pocket maximums walks through a detailed worked example with a claims-cost table.
Types of deductible
Fixed dollar
The most common type. A fixed amount — e.g. $500 or $1,000 — applies to each claim regardless of the total loss size. Used in auto, home contents, and most commercial policies.
Percentage-based
Calculated as a percentage of the insured value or claim amount — e.g. 2% of the home's insured value. Common for windstorm, hurricane, and earthquake coverage in high-risk regions.
Annual (aggregate)
Applies once per policy year. After you have paid the deductible total across multiple claims in a year, the insurer covers 100% of subsequent claims. Typical in health insurance.
Per-occurrence
Resets with each separate claim event. Most auto and property policies use per-occurrence deductibles, meaning you pay the deductible again each time you file a new claim.
The deductible–premium trade-off
A higher deductible lowers your premium because you are agreeing to absorb more of the cost of frequent, small losses yourself. Insurers price risk on expected claim costs, so transferring the small-loss risk back to you reduces their expected payout.
The right deductible level depends on your financial position: if you cannot comfortably afford to pay a $2,000 deductible from savings, choosing one to save $200 per year on premium is a poor trade. The Insurance Information Institute recommends keeping an emergency fund equal to at least your deductible. The NAIC consumer guide has state-by-state average premium data to benchmark your own costs.
Deductible FAQ
Frequently asked questions
- "Deductible" is the term used in the United States and Canada; "excess" is the equivalent term in the United Kingdom and Australia. Both refer to the same concept: the amount you pay first on any covered claim before the insurer contributes. The FCA consumer insurance pages use "excess" throughout.
- Generally yes — choosing a higher deductible signals to the insurer that you will absorb more of the cost of small claims, which reduces their expected payout and therefore your premium. However, the premium saving from increasing a deductible diminishes beyond a certain point. Use our premium vs. deductible calculator to model the trade-off for your situation.
- No. A co-pay is a fixed fee you pay for a specific service (e.g. $30 per GP visit) regardless of the deductible. A deductible is the total amount you pay for covered services before insurance kicks in for the year. Co-pays may or may not count towards your deductible depending on the plan. Our guide to deductibles and out-of-pocket maximums explains how these interact in health insurance.
- Yes. Many policies — especially home insurance — use split deductibles: a standard deductible for most claims and a higher percentage-based deductible for specific perils like wind, hail, or earthquake. The Insurance Information Institute explains wind and hail deductibles in detail.