What are an insurance premium and an insurance deductible?

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What are an insurance premium and an insurance deductible?Insurance has a lot of specific terminology that you might get tangled up in if you don’t know the lingo. So before you start shopping for insurance—no matter what it’s for—let’s discuss the terms you’re most likely to encounter, so that you understand what you’re getting into before you sign on the dotted line.

Insurance comes in many forms. You can get insurance for your home, your car, your health, or even your life. What all of these types of insurance have in common is that you make a payment to it every month so that your insurance company will pay you in case of an emergency. Emergencies such as if your home burns down, or if you are hit by a car—instead of going into debt paying off your expenses, your insurance steps in to help cover your bills.

What your insurance company will pay, and when it will pay, depends a great deal on the specific policy you have, but the general purpose is to help you out of financial trouble.

The different costs of an insurance plan

Premium: The premium is the amount of money you pay every month to the insurance company for coverage. Though in the case of health insurance, your employer may foot some, or even, the entire bill.

The exact price tag will vary depending on the type and quality of coverage. The premium isn’t all you have to pay—using your coverage will incur additional costs that, again, will vary depending on your insurance policy—so you should be sure the premium is affordable and that you still have enough cash to defray other costs when they come up.

Deductible: This is the dollar amount you have to pay out of your own pocket before you can get any money from your insurance company. You should be sure that the amount you pay on your deductible is one you are capable of paying in an emergency. However, you may also want to consider avoiding a very low deductible, which will sharply increase your monthly premium cost.

The right policy for you, will balance a premium cost you can afford every month, and a deductible you can handle paying if you need to.

Coinsurance: Once you’ve met your deductible, your insurance plan may cover all of the remaining costs, or it may just cover a percentage. If it only covers a percentage—say, it pays 90% of your costs after you meet your deductible—the percentage you have to pay is your coinsurance amount. The lower your costs, the higher you can expect your monthly premium to be.

Copayment: In health insurance, a copayment is a fixed cost that you pay for a certain service, like a doctor’s office visit or a prescription medication. Any service that does not have a fixed copayment will fall under your deductible. Not all health insurance will have copayments; lower cost plans, or plans designed only for emergency care, are more likely to simply have a deductible that you need to meet before getting coverage.

Out-of-Pocket Maximum: Another health insurance term, the out-of-pocket maximum is the most you have to pay (typically per year) for health care. After you’ve reached this maximum— which can be through a combination of copayments, coinsurance, and deductibles, but typically doesn’t include premiums—your plan will pay 100% of the cost of essential health benefits. Again, the lower your out-of-pocket maximum, the higher your premiums are likely to be.

Be sure to read the fine print

Insurance can be a huge help in keeping you out of financial trouble. However, it’s a complicated system and you will have to follow the rules set by your insurance company if you want to get the benefits of your policy. To be sure you know what you’re getting into. Go through your policy carefully and ask your insurance agent or provider if you have any questions.

And once you have insurance, you still need to pay attention to your coverage plan. If you need to use your insurance benefits, be sure you know what your policy will cover and where to go to get services. Health insurance, especially, tends to want you to use specific medical providers and may not offer any reimbursement if you do not—and that means that knowing your coverage details can save you a lot of cash.

 

Posted in: Personal Finance, Saving Money
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