When is a deductible typically applied?

A deductible is typically applied before the insurer pays the claim, which means that the insured is responsible for paying a specific amount of expenses out-of-pocket before the insurance coverage kicks in. This mechanism is designed to share the risk between the insurer and the insured, encouraging the insured to take care when incurring claims since they will have to cover a portion of the costs themselves.

When a claim is made, the insurance company first assesses the total loss, then applies the deductible to determine the net amount payable by the insurer. For instance, if a policyholder has a deductible of $1,000 and incurs a loss of $5,000, the insurer would cover $4,000 (the total loss minus the deductible).

In other contexts, such as filing a claim or when premium payments are made, the deductible does not come into play in the same way. The insured does not need to pay the deductible before filing a claim, nor is it linked to the payment of premiums. The application of deductibles is specifically related to when claims are processed and payment is made by the insurance company.