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Policy Maximums vs. Deductibles: What is the Difference and Why It Matters? 

Policy Maximums vs. Deductibles: What is the Difference and Why It Matters?

When purchasing insurance, whether it is for health, travel, or home, you will often encounter the terms “policy maximum” and “deductible.” These terms might seem similar, but they represent various aspects of your coverage. Understanding these concepts is crucial for making informed decisions about your insurance plan. 

Table of Contents: 

What is Policy Maximum? 

A policy maximum is the highest amount an insurance company will pay for covered losses under a specific policy. It is the ceiling on the financial protection your insurance provides.    

For example, if you have a health insurance policy with a $2 million policy maximum, the insurance company will pay a maximum of $2 million for covered medical expenses within a specific period, usually a year or for the number of days your policy is active if it is less than a year. If your medical bills exceed this amount, you will be responsible for the remaining costs. 

Understanding your policy maximum is crucial for assessing the adequacy of your insurance coverage. Higher policy maximums offer greater financial protection but typically come with higher premiums. 

What is Deductible? 

A deductible is the amount you pay out-of-pocket before your insurance coverage kicks in. It is a fixed amount specified in your insurance policy. For example, if you have a $500 deductible on your visitor insurance policy and you need to visit a doctor, you will pay your deductible first, and then your insurance company will cover the remaining medical expenses if any. 

Policy Maximum Vs. Deductible: Know the Difference 

Categories Policy Maximum Deductible
Definition The maximum amount your insurance company will pay for covered losses within a specific period. The amount you pay out-of-pocket before your insurance coverage kicks in.
Impact Determines the total financial protection you have under the policy. Determines the premium amount to be paid.
Example If the policy holder has chosen a $100,000 policy maximum, it means the insurance company will pay up to $100,000 for covered expenses. A $500 deductible means you pay the first $500 of a claim (billed amount), and the insurance covers the rest of the eligible expenses as per the policy benefits.
Premium costs A higher policy maximum leads to higher premium costs, and a lower policy maximum leads to lower premiums. A higher deductible typically translates to lower insurance premiums. Conversely, a lower deductible often leads to higher premiums.
Claims If the claim is an eligible claim and not excluded from coverage, coverage is provided up to the chosen policy maximum. Meeting your deductible is a prerequisite for insurance coverage to kick in.

FAQs 

How do I determine the right deductible for my insurance plan? 

Consider your financial situation and risk tolerance. A higher deductible typically means lower premiums, but you will pay more out-of-pocket in case of a claim. 

Can I change my deductible or policy maximum after purchasing an insurance policy? 

No, you cannot change your deductible or policy maximum after purchasing an insurance policy. Once the plan expires, and you wish to buy another insurance policy, you can change your deductible. Depending on the policy and its cancellation terms, you may be able to cancel the plan (a cancellation fee might be charged) and purchase a new policy per your choice of policy maximum and deductible.  

Can I negotiate my deductible with the insurance company? 

Typically, deductibles are set by the insurance company and cannot be negotiated. However, you can choose a plan with a different deductible level. 

Can I purchase additional coverage to increase my policy maximum? 

You can surely purchase additional coverage, but not with the same insurance company. It is not a good practice to have two separate plans, for the same duration. It is advisable to have a single policy with higher coverage.    

Conclusion 

Policy maximums and deductibles are fundamental components of insurance coverage that significantly impact your monetary responsibility in case of a claim. By carefully considering these factors, you can select an insurance plan that aligns with your risk tolerance and budget. Balancing the desire for lower premiums with the need for adequate protection is key to making informed insurance decisions. 

For more information, feel free to contact Visitor Guard®. 

Pallavi Sadekar

Pallavi Sadekar

Travel Insurance Expert

Pallavi Sadekar is a seasoned insurance professional with over 17 years of experience in the industry. As the Head of Operations at Visitor Guard®, she brings a wealth of expertise to the field. With a profound understanding of insurance, Pallavi has consistently demonstrated her commitment to helping clients make informed decisions about their coverage.

Pallavi’s insights and advice has earned her recognition in esteemed publications, including Forbes, USA Today, and various online platforms. Her contributions to these outlets have solidified her reputation as a trusted authority in the insurance domain. Whether it’s navigating the complexities of visitor insurance, finding the right coverage for clients, or understanding the intricacies of visitor health insurance, Pallavi’s in-depth knowledge allows her to offer practical and informed guidance to her clients.

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