Deductible
Deductibles are typically used to deter the large number of claims that a consumer can be reasonably expected to bear the cost of. By restricting its coverage to events that are significant enough to incur large costs, the insurance firm expects to pay out slightly smaller amounts much less frequently, incurring much higher savings. As a result, insurance premiums are typically cheaper when they involve higher deductibles. For example, health insurance companies offer plans with high premiums and low deductibles, or plans with low premiums and high deductibles. One plan may have a premium of $1,087 a month with a $6,000 deductible, while a competitive plan may have a premium of $877 a month with a $12,700 deductible. The consumer with the $6,000 deductible will have to pay $6,000 in health care costs before the insurance plan pays anything. The consumer with the $12,700 deductible will have to pay $12,700.
Charitable contribution deductions in the United States
To illustrate, suppose that the donor has an adjusted gross income of $100,000. In the year 2004, he gives $60,000 in cash to the American Cancer Society. The donor may deduct "only" $50,000 in 2004. Why? Because anything over that amount is in excess of 50% of his adjusted gross income (100,000 adjusted gross income × 50% = 50,000). The remaining $10,000 (60,000 total donation − 50,000 deducted in 2004 = 10,000) carries forward to 2005, at which point he may deduct it.