Navigating the world of insurance is notoriously difficult. When you are seeking out a new insurance plan, you are often faced with dozens of options, all detailing a dizzying array of numbers and insurance terms and healthcare verbiage. Knowing which plan is the best fit for you and your family’s needs can be challenging. Understanding basic health insurance terminology and policy components is vital for getting the most benefits out of your plan.

Each insurance company (such as Blue Cross Blue Shield or UnitedHealthcare) offers many policies to choose from. Being locked into a 12-month plan that doesn’t suit your situation can cost you hundreds – or even thousands – of dollars, unnecessarily. When choosing a policy, you will want to consider factors like the cost of your monthly premium, the overall condition of your health (i.e., whether you will have to frequently receive medical care), and any chronic illnesses or regular medications that you will need to purchase long-term.

Premium

An insurance premium is the fixed amount of money you will pay the insurance company each month simply to keep your insurance active. For example, if a policy has a $200 monthly premium, you can expect to pay a minimum of $1,400 a year even if you do not visit the doctor a single time.

Deductible

A deductible is the amount of money your insurance company expects you to contribute before they begin to cover any of your medical costs. This deductible amount does not include your monthly premium. As you pay medical costs (such as bills incurred for lab work, vaccinations, or surgeries) throughout your insurance year, the deductible balance goes down. If you end up paying the full amount of your deductible, your medical costs for the rest of your policy year are typically covered in part by insurance.

Co-Insurance

Once your deductible has been met, your insurance company begins to cover costs of your care. While most policies typically still require the member to contribute an amount towards the medical costs, it is often a much lower percentage of the service costs. For example, if your co-insurance rate is 20% after meeting your deductible, you can expect to be charged 20% of the total visit cost while your insurance company will cover the remaining 80%.

Out-of-Pocket

The out-of-pocket maximum for your plan is the highest amount of money that the insurance company expects you to pay for covered medical costs. For example, if your out-of-pocket maximum is $5,000, and you have a surgery that costs a total of $7,000, you will pay the full $5,000 (if you haven’t paid any other medical bills that year), and the insurance company will cover the remaining $2,000.

Typically, people do not meet the deductible or out-of-pocket maximum until towards the end of the year, as the costs of their medical visits have added up throughout the year. Once you meet the out-of-pocket maximum for your policy, it is a great time to take care of any medical treatments you may have been putting off due to cost, as your insurance will cover them now, provided that they fall under your policy’s list of covered services.

Be aware of open enrollment periods, as these are windows when you can sign up for specific plans, such as those offered through your employer. Spend extra time comparing plans and reading into the overall yearly costs.

For example, one plan may offer a $50 monthly premium which may seem like a very cheap option, but if the deductible is $7,000, it isn’t unreasonable to expect to pay the full cost of medical services for the entire year, as if you didn’t have insurance at all. However, another plan may require a $300 monthly premium but have a deductible of $1000, which means insurance starts to cover costs much sooner than the previous plan.

Insurance representatives are available to answer questions you have about each policy, so don’t hesitate to use them as a resource for information and to shop around at different companies.