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Insurance: What are Deductibles?



'Deductibles' is a word that appears in many medical insurance policies. In some policy wordings it appears as 'excess'.


In an insurance policy, a deductible is the portion of any claim that is not payable by the insurance company. It is generally quoted in fixed terms. For example, you may have seen an overseas travel insurance policy stating that in case of loss of passport the insured will get $500, subject to deductible of $50. So, if the policyholder's passport is lost and the loss assessment process conducted by insurer arrives at a loss of $250, the insurer will pay $200. Put simply, the maximum an insurer will pay for a loss of passport is $500, provided the policyholder pays the first $50 towards the loss.


In a typical general insurance policy insuring car, home, health or overseas travel, a deductible clause will be applicable to claims arising from damage to or loss of the policyholder. The deductible applies irrespective of the cause and with no bearing on whether the policyholder is responsible for such a loss. As a rule, higher the amount of deductible, lower the premium and the other way round.
Third party covers, however, do not have a deductible clause. Third party covers offer protection to the policyholder up to a sum assured for the harm or loss he causes to a person other than himself. For example, a person is held liable to pay for the loss caused by him if while driving, he happens to dash other person's car. An individual who has met with an accident or suffered due to a wrongful act of others typically tries to recover any loss, no matter how small, and the policyholder is liable to pay in such cases. This is the main reason why there is no deductible in third party covers.

 

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