What is a deductible?

What is a deductible?

October 4, 2016
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What is a deductible? You may have heard the word last time you went to buy auto insurance. But do you know what it means? And did you also know that it has two meanings, depending on the context? The following article will tell you everything you need to know about deductibles.


When it comes to insurance, deductibles are the amount of money that you pay out of your own pocket before your insurance company picks up the tab. Insurers use deductibles to lower their loss reimbursement costs. But you, the insured, get something out of it as well. The higher the deductible, the lower the premium rates.

By opting for a higher deductible you can actually save money on car insurance. Not only that, but it will also make sure that you’re a much more careful driver. After all, if you cause an accident, you’ll have to pay for it out of your own pocket.

Income taxes

Income taxes also come with deductibles. However, if you have to pay money for an auto insurance deductible, with income taxes, deductibles are anything that you can subtract from your income to reduce the amount that is subject to tax. For businesses, most expenses incurred for business purposes, such as rents, salaries, legal or accounting fees, are deductible.

We, as individuals, can also get certain deductions. Things such as home mortgage interests, property taxes, charitable gifts and all other items that reduce an individual’s adjusted gross income and the owed income tax are deductible.

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