Before your insurance company pays you, it will deduct your insurance deductible, which means that some money will likely come out of your pocket.

However, there are ways to save money if you understand how insurance deductibles work. Here's what you should know.

What is an insurance deductible?

When you file a claim, your insurance deductible is the amount you must pay before your insurance company will pay.

Insurance deductible amounts are typically specified in one of two ways in your policy:

• As a specific monetary value.
• As a percentage of the total insurance amount of the policy.

These deductibles are applied differently by different types of insurance. For example, with homeowners and auto insurance policies, you'll pay a separate deductible for each individual claim. In contrast, with health insurance, a single deductible covers all claims within a calendar year.

Regardless of how the deductible is applied, once you reach your deductible, your insurance will begin to contribute.

Choosing your insurance deductible

Most policies allow you to adjust your deductible, making it a valuable money-saving tool. For example, if you carry a higher deductible, your overall premium will be lower because you are taking on more risk.

If you don't file a claim, you could end up saving money each month. If you do need to file a claim, you may incur significant out-of-pocket expenses. As a result, it's critical to select a deductible that you know you can afford.

Deductibles are an unavoidable component of almost all types of insurance. There are no-deductible policies available, but they typically have very high premiums.

Although there are some exceptions, such as auto liability coverage, most situations will require you to pay a deductible before your insurance company will cover the rest.

Health insurance deductible

The deductible on your health insurance is the amount you pay for covered services before your plan begins to pay.

It's critical to remember that meeting your annual deductible does not always mean the end of your out-of-pocket expenses. Any required health insurance copayments or coinsurance on covered services remain your responsibility. Most plans, however, have an out-of-pocket limit that limits how much you have to pay for medical expenses before they are fully covered.

Individual family members often have separate, smaller deductibles, while the entire family has a larger, combined deductible. These plans begin to pay for covered claims in the following scenarios:

• A person meets his or her own deductible. In this case, only that individual's expenses are covered.
• The entire family's expenses exceed the family deductible. Every family member is now fully covered, regardless of whether their individual deductibles have been met.

Car insurance deductible

Only certain aspects of your auto insurance have a deductible. For example, liability car insurance does not require a deductible; however, liability coverage only pays for damage you cause to others, not damage to you or your vehicle. Other coverages may be available without a deductible in your state.

When you file a claim, your insurer will calculate the covered amount, deduct your deductible, and pay the difference. The same procedure is followed for each new claim, so you must pay the deductible each time.

Each type of coverage, such as comprehensive or collision insurance, has its own deductible. Your monthly premium will be lower if you choose a higher deductible.

Some insurers provide a "disappearing" or "vanishing" car insurance deductible programme, which reduces your deductible by a predetermined amount each year you do not file a claim.

Homeowners insurance deductible

When it comes to homeowners insurance, the stakes can be very high depending on the deductible you choose.

Deductibles for homeowners insurance can be expressed as a dollar amount or as a percentage. Your deductible is applied to each individual claim and deducted from the amount paid by the insurance company. Homeowners insurance deductibles typically range from $500 to $2,000. A higher deductible will lower your monthly premium, but you will pay more out of pocket if you need to file a claim.

Percentage deductibles operate in a different manner. Rather than paying a fixed amount, you agree to pay a percentage of the insured value of your home for each claim, typically around 2%. There are a few things you should know about percentage deductibles:

• They're often required for natural disasters such as hurricanes, wind, hail and earthquakes, even if the rest of your policy has a dollar amount deductible.
• Even a small percentage can add up to a significant cost. Assume your home has a $300,000 insured value and a 5% hurricane deductible. If it is damaged in a hurricane, you could be liable for up to $15,000 before your insurance company begins to pay.
• Your deductible rises in tandem with the insured value of your home. Using the same example as before, if a renovation or addition raises the insured value of the home to $325,000 with the same 5% deductible, you'd now have to pay $16,250 before insurance kicks in.

Before deciding on a fixed dollar amount or a percentage deductible, make sure you can afford to pay the deductible if you have a claim.

You may be required to purchase flood insurance in addition to your homeowners policy, depending on where you live. Paying a higher premium can lower your flood insurance deductible, but there is some risk involved.

Flood insurance policies cover both the physical structure and its contents separately, so if both the physical structure and its contents were damaged by the same flood, you'd have to pay deductibles for both claims.

Renters insurance deductible

Renters insurance deductibles are always flat dollar amounts because your policy only covers you and your belongings, not the physical structure of the building. There is no deductible in certain situations, such as specific valuable items you've added to your policy or liability claims against you.

Renters insurance quotes are typically lower than homeowners insurance quotes, resulting in lower monthly premiums; therefore, increasing your deductible may not have the same impact on your overall savings as it does with other coverages.

Life insurance deductible

This one is straightforward: There are no deductibles in life insurance policies. When a "claim" is made on someone's policy (the insured person dies), the life insurance beneficiary receives the full benefits with no deductible.

Other types of insurance deductibles

Cell phone insurance deductible

T-Mobile, AT&T, and Verizon all provide cell phone insurance plans with deductibles for each eligible claim. The insurance is provided by a third party, and you can purchase it directly from the provider rather than through your carrier if you prefer.

The deductible can be $249 or more depending on the provider you choose and the type of phone you have.

Long-term care insurance deductible

Long-term care insurance does not have a deductible, but it does have a "elimination period" that functions similarly to a deductible. Before the policy begins to pay out, the policyholder must pay for care for a set period of time, such as 90 days.

Pet insurance deductible

Annual deductibles on pet insurance policies typically range from $0 to $1,000 or more. Carrying a very low (or no) deductible, as with other types of insurance, will result in higher premiums.

Some insurers base deductibles on a pet's ongoing condition rather than the coverage year, so once you reach the deductible for the condition, it does not reset regardless of the year you file a claim.

Travel insurance deductible

Travel insurance is frequently sold as a package that covers a variety of scenarios, such as trip cancellation, baggage loss, and emergency medical treatment. Deductibles can vary significantly.

Increasing your travel insurance deductible, as with other types of insurance, will lower the overall cost of the policy.