If you’ve ever applied for or purchased insurance, chances are you’re familiar with the term “deductible.” But just because every automobile or house insurance policy has a deductible doesn’t mean that policyholders understand what it is or even how it works.
It’s important to understand deductibles because they can have a significant impact on your finances, both in terms of your monthly payments and the amount you’ll be eligible for in the event of a claim.
Deductibles explained
When you make a claim with your insurance company, the deductible is a portion of the claim that you’ll be responsible for paying before the insurer will cover the rest of the claim. In most cases, the deductible just gets deducted from the payment that the insurer issues after approving your claim.
Are deductibles the same across the board?
Deductibles can typically range anywhere from $500 to $5,000, but the type of insurance and the insurance company you work with will determine your options. For example, if you have both comprehensive and collision insurance for your car, each type of insurance will likely have a separate deductible, and the amount can be different for each.
When it comes to home insurance, the deductible may vary for different types of claims. For instance, the deductible you’ll pay when you make a claim for damage to your property or loss of personal items may be one number, but you’ll have to pay a higher deductible if you make a claim for water, sewer, or storm damage.
Do you always have to pay the deductible?
Any time you make a claim on your home or vehicle insurance, you’ll generally have to pay a deductible. However, there are exceptions to this rule. If you make a claim after an automobile collision, for example, then the deductible you’re responsible for paying may be determined by whether you were:
- At-fault, in which case you’ll likely pay the full deductible
- Partially at-fault, in which case you may pay a partial deductible
- Not-at-fault, in which case the deductible may be covered under direct compensation
The impact of deductibles on your rates
Choosing your deductible is an important step when you’re applying for car, home, and even rental insurance because the deductible will have a direct influence on your monthly payments.
So, the higher a deductible, the lower your monthly payments will be. The lower the deductible, the higher your monthly payments will be. Finding the suitable balance between the two can be difficult, but it’s all about weighing the amount you’ll pay annually versus what you’d lose out on from the deductible in the event of a claim.
Insurance deductibles may not be something you have to worry about in your daily life, but it’s important to understand what they are, how they work, and how they can impact your finances. The deductible you’ll be responsible for will be determined by your specific policy, and this amount will also influence your monthly payments, so you should consider your deductible options carefully before purchasing insurance in the future.
