What Is an Insurance Deductible?
The insurance deductible is the amount of money you will pay in an insurance claim before the insurance coverage gets used and starts to pay you.
When you have a deductible, you have to come up with the amount of money for your deductible before a claim gets paid in different circumstances. Once you pay your deductible the insurance company will pay you the rest of the claim value up to the policy limits and conditions in the wording.
Insurance Deductible Basics
In this article we will cover all the basics of a deductible, we will go in simple terms so it is easy to understand and hopefully you will be able to get through a normal conversation with your insurance agent in how your insurance works on your car and house.
How Does an Insurance Deductible Work?
Imagine the Deductible as Your Part of "the Bargain". When you buy insurance you are protecting yourself against unforeseen financial risks that come in the form of losses or damages.
By buying insurance you are asking the insurance company to put you "in good hands" and cover you in the case of any loss caused by events and that if you suffer damages that could hurt you financially. In turn, the insurance company usually says, "Sure, I'll cover you if you incur a loss (claim), but do you agree first to pay the initial "down payment" part of it by paying a deductible?"
Using the example of a $500 deductible, you say, "Sure, I can afford to pay the first $500 of any loss, if you can pay the rest."
They tell you how much they will charge you based on how much of the risk you're willing to cover yourself. The part of the risk you are covering is the deductible.
Where Do You Find Out How Much Your Deductible Is?
Your deductible should be listed as part of the terms and conditions of your contract on the declaration page of your insurance policy If you are not sure what your deductible is, or where to find it, contact your insurance company representative and ask them. You should also ask them if there are multiple deductibles for different circumstances.
Examples of Deductibles:
Who Decides How Much the Deductible Will Be?
As the person buying the insurance policy, you usually have the choice of how much of a deductible you will have. The higher the deductible, the lower the cost of your insurance. There are a few different strategies you can use if you want to use your deductible to save money on your insurance.
You can think of the deductible as your self-insurance, the part you've agreed to pay.
The higher the amount of risk you are willing to cover via the deductible, the less risk for the insurance company. Therefore, they reduce their cost. It's a partnership where you and the insurance company agree to share the financial risks.
What Is a Minimum Deductible?
Your policy may have a minimum deductible. Insurance companies want you to pay your part in a claim, so in most cases, the insurance company will set a minimum deductible. You can increase your deductible to save money, but you can not decrease it if the insurance company has set a minimum deductible.
What is the Minimum Deductible for Different Insurance Policies?
There is usually a minimum deductible that varies by policy type. For example, a home policy might have a $500 minimum deductible. The minimum deductible will vary by state and policy.