Aggregate deductible, straight deductible and others.

The following deductibles are commonly found in property insurance contracts:

• Straight deductible

• Aggregate deductible

Straight Deductible

With a straight deductible, the insured must pay a certain number of dollars of loss before the insurer is required to make a payment. Such a deductible typically applies to each loss. An example can be found in automobile collision insurance.

For instance, assume that Ashley has collision insurance on her new Toyota, with a $500 deductible. If a collision loss is $7000, she would receive only $6500 and would have to pay the remaining $500 herself.

Aggregate Deductible

Commercial insurance contracts sometimes contain an aggregate deductible. An aggregate deductible means that all losses that occur during a specified time period, usually a policy year; are accumulated to satisfy the deductible amount.

Once the deductible is satisfied, the insurer pays all future losses in full. For example, assume that the policy contains an aggregate deductible of $10,000. Also assume that losses of $1000 and

$2000 occur; respectively, during the policy year.

The insurer pays nothing because the deductible is not met. If a third loss of $8000 occurs during the same time period, the insurer would pay $1000. Any other losses occurring during the policy year would be paid in full.

Deductibles in Health Insurance

In health insurance, the deductible can be stated in terms of dollars or time. Deductibles in health insurance include the following:

• Calendar-year deductible

• Corridor deductible

• Elimination (waiting) period

Calendar-year Deductible

A calendar-year deductible is a type of aggregate deductible that is found in basic medical expense and major medical insurance contracts. Eligible medical expenses are accumulated during the calendar year, and once they exceed the deductible amount, the insurer must then pay the benefits promised under the contract. Once the deductible is satisfied during the calendar year, no additional deductibles are imposed on the insured.

Corridor Deductible

Employers with basic medical expense plans often wish to supplement the basic benefits with major medical benefits. A corridor deductible is a deductible that can be used to integrate a basic medical expense plan with a supplemental major medical expense plan. The corridor deductible must be satisfied before the major medical plan pays any benefits.

The corridor deductible applies only to eligible medical expenses that are not covered by the basic medical expense plan. For example, Janet has $20,000 of covered medical expenses, of which $16,000 is paid by the basic medical expense plan. If the supplemental major medical plan has a $300 corridor deductible, Janet must pay $300. The supplemental plan will cover the remaining $3700 of expenses, subject to any limitations or coinsurance provisions that may apply.

Elimination (Waiting) Period

A deductible can also be expressed as an elimination period. An elimination (waiting) period is a stated period of time at the beginning of a loss during which no insurance benefits are paid. An elimination period is appropriate for a single loss that occurs over some time period, such as the loss of work earnings. Elimination periods are commonly used in disability-income contracts. For example, disability-income insurance contracts that replace part of a disabled worker’s earnings typically have elimination periods of 30, 60, or 90 days, or even longer periods.

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