What Is a Deductible (Excess) in Insurance?

Two neighbours have the same burst pipe and the same $2,400 repair bill. One gets a cheque for $1,900 within a fortnight. The other gets nothing at all, and only then discovers why. The policies were nearly identical. The deductible was not.

That single number, called an excess in the UK, is the least examined line on most insurance policies and one of the few you actually control. It is worth ten minutes.

What the number actually does

A deductible is the portion of a claim you fund yourself before the insurer pays anything. Set it at $500 and a $2,400 claim pays out $1,900. Set it at $2,500 and the same claim pays out nothing, because the loss never reaches the point where cover begins.

That second case is the part people miss. A high deductible does not just make claims smaller, it makes whole categories of claim disappear. Every loss below your number is, in practice, uninsured.

In exchange, your premium falls. That is the entire trade: you take on the frequent small losses, the insurer keeps the rare catastrophic ones. Which is arguably what insurance is for.

Four terms that are not the same thing

The confusion in US health insurance is that the deductible is only one of four numbers, and they do different jobs.

Term	What it means	When it applies
Deductible	What you pay before the plan starts paying	Resets each plan year
Copay	A flat charge per visit or prescription	Often applies before the deductible is met
Coinsurance	Your percentage share after the deductible	Between deductible and out-of-pocket max
Out-of-pocket maximum	The annual ceiling on what you pay in total	Once hit, the plan covers 100 percent of covered care

The out-of-pocket maximum is the number that determines your worst possible year, and it is the one to compare first when you are choosing between plans. HealthCare.gov's definitions of both terms are the plain-English reference worth bookmarking.

One useful wrinkle: certain preventive services are covered before you have met a deductible at all, so a high deductible does not mean you should skip a check-up you are entitled to for free.

The break-even math nobody runs

Here is the calculation that should decide your number, using a home policy as the example.

Say your insurer quotes:

• $500 deductible: $1,340 a year
• $1,000 deductible: $1,235 a year
• $2,500 deductible: $1,080 a year

Going from $500 to $1,000 saves $105 a year and exposes you to $500 more per claim. Divide the extra exposure by the annual saving: $500 divided by $105 is roughly 4.8. So you need to go about five claim-free years for the move to have paid for itself. Most households claim on home insurance far less often than that, so this one is usually worth taking.

Now the bigger jump. Going from $500 to $2,500 saves $260 a year and exposes you to $2,000 more. That is $2,000 divided by $260, or about 7.7 years. Still positive on paper, but you have also just made every claim under $2,500 worthless, and you need $2,500 available in cash on a bad day.

The rule that falls out of this: take the jump where the break-even is short and the cash is comfortably available, and stop there. Chasing the last slice of premium saving buys the least protection per dollar given up.

The same logic applies to a UK voluntary excess and to Canadian auto and property deductibles. Ask for the premium at three levels rather than accepting the default, then divide.

Percentage deductibles are the real trap

Most deductibles are flat amounts. Some are not, and that is where people get badly caught.

In parts of the US exposed to hurricanes and windstorms, property policies commonly carry a separate wind or hurricane deductible expressed as a percentage of the dwelling's insured value rather than of the claim. A modest sounding percentage against a large sum insured is a five-figure number, and it applies exactly when a whole region is claiming at once.

Canada has the same structure on earthquake cover. The Financial Consumer Agency of Canada notes that earthquake deductibles are usually a percentage of your coverage limit, commonly somewhere in the range of 5 to 20 percent. On a home insured for a substantial amount, that is not a rounding error.

Two questions to ask your insurer, in writing:

1. Are any of my deductibles expressed as a percentage rather than a dollar or pound amount?
2. Is that percentage taken from the claim, or from the sum insured?

The answer to the second question changes the number by an order of magnitude.

How the three countries differ

United States. Deductibles are per claim on property and motor, and annual on health. Health plans qualify as high deductible plans, and therefore unlock a Health Savings Account, only when they meet IRS thresholds. For 2026, Rev. Proc. 2025-19 sets the minimum annual deductible at $1,700 for self-only coverage and $3,400 for family coverage, with out-of-pocket expenses capped at $8,500 and $17,000 respectively. If you are choosing a high deductible plan, the HSA tax treatment set out in IRS Publication 969 is part of the value, and it is the part that often makes the maths work.

United Kingdom. Your excess is normally two numbers added together. The compulsory excess is fixed by the insurer and reflects their view of the risk, which is why young or newly qualified drivers see high ones. The voluntary excess is the amount you choose on top to bring the premium down. You pay both when you claim, so a £250 compulsory plus £250 voluntary excess means £500 out of your pocket. Many home policies also apply separate excesses to different sections, with subsidence typically carrying a much higher one than general damage. Excess protection is sold as an add-on that refunds the excess after a successful claim, and it is worth pricing against simply choosing a lower excess in the first place.

Canada. Deductibles are per claim and per peril, so a home policy can carry one figure for standard damage, another expressed as a percentage for earthquake, and separate treatment for overland water and sewer backup endorsements. Auto insurance is more provincially varied than in either other country, because some provinces run public insurers and different fault and direct compensation rules, all of which affect whether and when you actually pay your deductible after a not-at-fault collision.

When a higher deductible is the wrong call

The break-even math is necessary but not sufficient. Skip the increase if any of the following is true.

You could not produce the money within about a week without borrowing. A deductible you cannot pay converts an insured loss into an uninsured one at the worst possible moment. This is the only test that overrides everything else.

You are already carrying credit card debt. Paying a lower premium and then financing a claim at card rates is a losing trade, and the interest usually swamps the saving.

Your emergency fund is doing another job. If the same cash is also your redundancy buffer, it cannot simultaneously be your deductible. If it is thin, the sequence is to build the buffer first, and our guide to lowering your home insurance premium covers the ways to cut cost that do not depend on raising your exposure.

You have multiple policies with the same insurer. Check whether a single event could trigger two deductibles, for example a storm that damages both the house and a vehicle parked beside it.

A five minute review

Pull out your current policies and write down, for each one, the deductible or excess, whether it is flat or a percentage, and whether any section carries a different figure. Then add up the worst realistic case: what would one bad event actually cost you before any insurer paid anything?

If that total is larger than what you could comfortably produce in cash, your policy is cheaper than it looks for a reason, and the reason is that you are carrying more of the risk than you realised.

The bottom line

The deductible is a deliberate bet on how often you will claim, and the premium saving is the odds you are being offered. Run the break-even calculation at two or three levels, take the step where the payback is a handful of years and the cash is genuinely available, and stop there. Check every policy for percentage-based deductibles, because those are the ones that turn a bad day into a financial event. And never set a number you could not write a cheque for tomorrow, because the entire point of the arrangement is to be able to use it.