What are Insurance Deductibles
Thursday, November 22, 2012
Many holders of insurance policies neither know what deductibles are, nor understand how they can use them to reduce the size of their monthly premiums. It is the kind of term that everyone has heard, and that all claimants have discovered in practice. But it is a concept that few people understand until they actually make an insurance claim.
A deductible is that part of an insurance claim that the claimant has to pay before the insurance company becomes responsible for the remainder.
- If your insurance policy specifies a $500 deductible, and you claim $500, you have to pay the full $500 and the insurer does not become involved.
- If your insurance policy specifies a $500 deductible, and you claim $2,500, you pay $500 and the company pays $2,000.
- If your insurance policy specifies a $500 deductible and a maximum payable amount of $2,000, and you claim $2,500, they pay $1,500 (the maximum payable minus the deductible), you pay $500 (the deductible) and you are responsible for the rest as well.
Insurance companies use deductibles to hold policy holders responsible for the losses that they can reasonably be expected to manage alone. If everyone had to claim every single small loss from their insurance company, then the insurers would spend enormous amounts on a huge number of claims for small losses that their customers can afford to cover. As a result, everyone would pay higher monthly premiums.
Policy holders can usually choose the deductible that they want on their policies, and are thus in a position to determine the size of their monthly premium. The larger the deductible, the smaller the premium; in other words, the larger the part of the claim that the policy holder is prepared to cover, the smaller the monthly premiums that she has to pay.
- If you are comfortable with taking risks, you can set high deductibles on policies that cover property that is unlikely to be seriously damaged. But for other pieces of property you can stipulate how much you want the deductible to be. For example, if you wanted to insure something specifically (like a camera) and wanted to have a $0 deductible, then the premium for that specialty item will indeed be higher.
- Some insurance policies express the deductible as a percentage rather than a dollar amount.
- Some auto insurance policies exclude a deductible in cases where the policy holder is in an accident for which she carries no responsibility.
- Some insurance companies do not apply a deductible if the insured person has a total loss of, for example, her vehicle, such as through theft or fire.
- Some companies waive the deductible in cases where vehicles are damaged through collision with animals.
Deductibles are simple, and you can choose the one that suits your need and pocket best.