Insurance Deductible Definition & How They Work

What does it mean when you have a $1000 deductible?

The Cambridge Dictionary defines a deductible as, "a part of the cost of an accident, injury, etc., that you agree to pay when you buy insurance."¹ That's an accurate description, but it also leaves out many of the particulars -- such as when and how often you have to pay your part. Here's a closer look at what it means, exactly, when you have a $1,000 deductible on your auto, home, and health insurance.

Be aware, across all types of insurance, the lower your deductible, the higher the price you will pay for the insurance. If you're considering an auto insurance deductible of $500 or $100 for instance, the $500 option definitely costs more. How much depends on the type of coverage. Is it better protection to have a $500 deductible or $1000? It's all about the price to coverage protection combo that best fits your risk-profile and budget.

Car insurance $1,000 deductible 

When you have a $1,000 auto insurance deductible, you pay the first $1,000 of repair costs on any loss your insurer will cover. Say you drive your car into a tree and cause $2,300 in damages. If you have collision insurance and your insurer accepts your claim, you pay $1,000 of the repair costs and your insurer pays the remaining balance of $1,300.  

There are two notable characteristics to remember about your auto insurance deductible. One, you pay your entire deductible before your insurance company pays anything. So if the cost of the repair is $1,100, you pay $1,000 and your insurance company pays $100. And if the cost of a repair is $900, you are responsible for the entire $900. As a sidenote, you are usually better off handling these repairs yourself, without involving your insurer. This is because your rates may rise after you file the claim, which will ultimately cost more than the $100 your insurer might pay on that claim. 

Secondly, your $1,000 auto insurance deductible applies per incident. If you are unlucky enough, you could end up paying several thousand dollars in car insurance deductibles in a single year. You might drive into the tree in January, for example, and then rear-end someone in March. Since those are two separate incidents, you'd have to pay your $1,000 deductible for each one. 

$1,000 deductible home insurance

A $1,000 homeowners insurance deductible works similarly, in that you pay the first $1,000 of repair costs for each incident.² As with your auto insurance deductible, there is no maximum out-of-pocket amount you'd pay each year. If you file multiple claims, you'll pay multiple deductibles.  

Homeowners claims can be more complicated than auto claims, however, in that one incident can cause multiple problems. A burst pipe, for example, could damage drywall, stain carpet, and create a mold problem. Your insurer may try to separate these issues into three claims, which would result in you paying your $1,000 deductible three times. It's in your best interest to argue that these damages are all related to the same claim -- and so you should only pay your $1,000 deductible once.

As with auto insurance, it's smart to weigh the cost of higher insurance premiums against expected repair costs before you file a claim. You might pay for a $2,000 repair on your own, for example, without involving your insurer. This costs you $1,000 over the deductible now, but potentially saves you more over time if you can sidestep a premium increase. 

$1,000 health insurance deductible 

A $1,000 health insurance deductible works differently than a car or homeowners insurance deductible. It's not a per-incident amount. Instead, your healthcare deductible is a cumulative amount you must pay during a single calendar year before your health insurer covers any of your medical expenses.³ 

Say your health plan has a $1,000 deductible and then pays 80% of certain services thereafter. If you pay for a $250 weekly for physical therapy sessions, you will have paid $1,000 cumulatively after four weeks. That meets your deductible requirement, so that your insurer should cover 80% of your physical therapy bill going forward. 

That's basically the way health insurance deductibles function, but the example doesn't demonstrate some common healthcare complexities. In real life, health plans have many rules and exclusions about what applies to your deductible and what doesn't. You also likely have access to certain, free preventative services that don't count against your deductible at all. Thanks to those complexities, it can be confusing to keep track of your progress on covering that deductible. If you're not sure, contact your insurer and ask.

Knowing the status of your deductible can help you schedule any procedures you might need. For example, if you don't expect to meet your deductible for this year, you might delay a pricey procedure until the start of the following year. Ideally, that procedure would cover all of your deductible in January. Then, the insurer would pay a greater share of your medical expenses for the remainder of that calendar year.