Understanding Deductibles
If you have insurance, it’s likely that you’ve heard of deductibles and if you’ve had a claim, it’s likely that you’ve paid one. But not everyone fully understands deductibles and most of us don’t give much thought to them — until it’s too late to make a change.
The deductible is the part of the claim you pay. You’ll find deductibles with home insurance, business insurance, auto insurance, and health insurance. Some types of policies can have multiple deductibles, depending on the claim type. In most cases, the deductible is a fixed dollar amount, like $100, $500, or $1,000. In other cases, the deductible can a fixed percentage of the coverage amount, like for certainly covered perils on a home insurance policy.
Let’s look at a home insurance policy first and assume your home in insured for $300,000. Your policy has a standard deductible, usually $1,000 or higher. If you have a covered claim for $10,000 the insurer will pay $9,000. You pay the other $1,000, the deductible.
Certain risks may use a percentage-based deductible instead. The most common use is for wind and hail damage, but some policies also use a percentage-based deductible for hurricane damage or for riders that cover earthquakes. The percentage can vary from one insurer to the next or can be based on the amount you choose.
Let’s say the percentage deductible for wind and hail damage is at 2%. For a house insured for $300,000, the deductible is $6,000. Depending on how much you have saved, that amount may or may not be an issue if you have a claim, but for many households, a $6,000 surprise could change the family budget for the year. Be aware that percentage-based deductibles can be even higher, which means it’s important to review your policy with your agent to be sure your coverage is providing all the protection you need.
Deductibles can apply to collision and comprehensive coverage for your cars, your medical coverage attached to your auto policy, or to your personal property. It’s important to review your deductibles for each type of insurance to be certain the deductible is a realistic amount.
Higher deductibles often result in lower premiums, but the net effect is that you also increase your financial risk with a higher deductible. If you’re able to bank the savings when choosing a higher deductible, you can fund your own deductible and you get to keep the money you’ve saved if you never have a claim. However, if you don’t have much saved, a lower deductible may be a safer strategy.
If you haven’t reviewed your policy with your agent recently, this is the perfect reason to schedule a policy review. Your agent can go over your coverage and make any changes needed to ensure your policies provide the protection you need in a way that won’t create any expensive surprises if you have a claim.
The deductible is the part of the claim you pay. You’ll find deductibles with home insurance, business insurance, auto insurance, and health insurance. Some types of policies can have multiple deductibles, depending on the claim type. In most cases, the deductible is a fixed dollar amount, like $100, $500, or $1,000. In other cases, the deductible can a fixed percentage of the coverage amount, like for certainly covered perils on a home insurance policy.
Let’s look at a home insurance policy first and assume your home in insured for $300,000. Your policy has a standard deductible, usually $1,000 or higher. If you have a covered claim for $10,000 the insurer will pay $9,000. You pay the other $1,000, the deductible.
Certain risks may use a percentage-based deductible instead. The most common use is for wind and hail damage, but some policies also use a percentage-based deductible for hurricane damage or for riders that cover earthquakes. The percentage can vary from one insurer to the next or can be based on the amount you choose.
Let’s say the percentage deductible for wind and hail damage is at 2%. For a house insured for $300,000, the deductible is $6,000. Depending on how much you have saved, that amount may or may not be an issue if you have a claim, but for many households, a $6,000 surprise could change the family budget for the year. Be aware that percentage-based deductibles can be even higher, which means it’s important to review your policy with your agent to be sure your coverage is providing all the protection you need.
Deductibles can apply to collision and comprehensive coverage for your cars, your medical coverage attached to your auto policy, or to your personal property. It’s important to review your deductibles for each type of insurance to be certain the deductible is a realistic amount.
Higher deductibles often result in lower premiums, but the net effect is that you also increase your financial risk with a higher deductible. If you’re able to bank the savings when choosing a higher deductible, you can fund your own deductible and you get to keep the money you’ve saved if you never have a claim. However, if you don’t have much saved, a lower deductible may be a safer strategy.
If you haven’t reviewed your policy with your agent recently, this is the perfect reason to schedule a policy review. Your agent can go over your coverage and make any changes needed to ensure your policies provide the protection you need in a way that won’t create any expensive surprises if you have a claim.
If you have questions or need help with your home insurance, please give us a call: 910-762-8551 or shoot us an email insurance@wellsins.com
