Do Insurance Deductibles Start Over?

Understanding Deductibles and Policy Periods

An insurance deductible represents the amount of money a policyholder is responsible for paying before their insurance coverage begins to cover the costs of a covered claim. This financial arrangement serves as a cost-sharing mechanism between the insured individual and the insurance company. By requiring policyholders to bear a portion of the initial loss, deductibles can help deter small claims and encourage more responsible behavior regarding insured assets. For instance, a common deductible for an auto insurance policy might be $500 or $1,000, while homeowners policies might have deductibles ranging from $1,000 to $2,500, or even a percentage of the dwelling’s insured value, such as 1% or 2%.

The application of a deductible is linked to the insurance policy period, which is the duration an insurance contract remains active. Most insurance policies, including those for vehicles, homes, and health, are structured with policy periods that span six months or one year. During this active period, the terms and conditions outlined in the policy, including the deductible amount, are in effect. The policy period establishes the timeframe within which covered events must occur for the deductible and subsequent coverage to apply.

When Deductibles Reset

For most insurance policies, the deductible resets at the beginning of each new policy period. This means that if a policy operates on an annual cycle, the deductible resets every twelve months. The reset occurs regardless of whether claims were filed or the deductible was met in the previous period. For example, if a policy renews on January 1st, a new deductible amount becomes effective on that date, even if the prior year’s deductible was met through a claim in December.

Circumstances can trigger a deductible reset outside of standard policy renewal. If a policyholder decides to switch insurance providers, a new deductible amount will be established with the new policy, resetting the deductible from the new coverage’s start date. Similarly, making significant alterations to an existing policy, such as adding a new vehicle to an auto policy or changing coverage limits on a homeowners policy, can lead to a deductible reset for the revised coverage.

Deductibles Across Different Insurance Types

The way deductibles apply and reset can vary depending on the type of insurance coverage. For auto insurance, deductibles are applied on a “per incident” or “per claim” basis. This means that if a policyholder experiences two separate accidents within a single policy period, a separate deductible applies to each distinct claim.

Similarly, homeowners insurance deductibles are applied “per claim” or “per event.” For example, if a home sustains damage from a windstorm and then, later in the same policy period, experiences a separate incident like a burst pipe, a distinct deductible applies to each of those covered events. The deductible for homeowners insurance relates to a single occurrence that causes damage, such as a fire or a natural disaster, rather than a cumulative amount over time.

Health insurance deductibles, in contrast, are applied on an “annual” basis. Once the policyholder meets their annual deductible within a calendar year or a specific plan year, the health insurance company begins to pay for covered medical services, subject to coinsurance or copayments, for the remainder of that year. This annual deductible then resets at the start of the next plan year, requiring the policyholder to meet it again before the insurer’s full contribution begins. Some health plans might also feature separate deductibles for specific types of services, such as prescription drugs, which also reset annually.