How does your insurance deductible work?

To get the most out of the money you invest in insurance, it is essential to know how the deductibles associated with policy work and when a claim is filed.


Basically, the deductible is the part that is “subtracted” from the payment made by the insurer for the loss suffered by the insured.


Traditionally, in the insurance contract, deductibles have the function of dividing the risk between the insured (the client) and the insurers. Thus, when a loss occurs, the insured pays a portion of it out of pocket, this portion being known as the deductible.


The deductible can be a specific amount, that is, a figure in dollars, or it can be a percentage of the total amount of the insurance contracted in the policy. Generally, the higher the deductible, the lower the premium will be paid for an insurance policy. The deductible amount is listed on the main page of the “statements” of a homeowners insurance policy or auto insurance policy, which generally means it is found on the front page or cover of the document.


Here’s how a deductible works: If you have a deductible set as a specific amount, let’s say $ 500, that money, the $ 500 is the portion of the damages that you will pay. The insurance will pay the money above that $ 500 that is necessary. If the insurer determines that your loss is $ 10,000, then the amount of the award or the check that you will receive will be $ 9,500 ($ 10,000 of the lossless $ 500 of the deductible).


The deductibles expressed in percentages are calculated based on the total insurance amount of the insured property. Let’s say your home is insured for $ 100,000 and you have a deductible equal to 2%, that is, $ 2,000 deductible. If there is a claim, the $ 2,000 will be “deducted” from the claim or the compensation check you receive. For a loss of $ 10,000, a 2% deductible means $ 2,000 less. That is, the check would be for $ 8,000 ($ 10,000 loss minus $ 2,000 deductible).


In many parts of the country, deductibles have been steadily increasing. In hurricane-prone states, where there is a higher risk of a catastrophic event, special deductibles may be allowed on homeowners insurance claims when damage is caused by a hurricane. Typically the deductibles known as hurricane deductibles are higher and are almost always expressed as a percentage, not a specific amount.


Deductibles on a property insurance policy work differently than deductibles on other insurance, for example, deductibles on health insurance. In a health policy, there is a deductible that accumulates for the year. With an auto or home insurance policy, the deductible works differently – it applies to every claim that is filed. One exception to this rule is the way in which hurricane deductibles are applied in the state of Florida. Hurricane deductibles in Florida are not subtracted with each storm or hurricane but are accumulated by the season.


The main reason hurricane deductibles exist is that they help keep insurance coverage available for coastal communities through private insurers and keep their prices affordable. The interest and willingness of private insurers to offer coverage in many areas help maintain competition and prices, giving consumers more choice. That way, consumers residing in areas where there is competition can compare prices and services when looking for insurance for their properties.

These are several of the important details to know about deductibles:

Increasing the deductible can save money on insurance 

A good way to save money on home or auto insurance is by increasing the amount of your deductible. For example, in an auto insurance policy, increasing the deductible from $ 200 to $ 500 can reduce the portion of the collision insurance ( collision ) and the extensive or coverage for other damages ( comprehensive ) between 15% and 30%. Raising it to $ 1,000 can reduce the premium price by 40%. But it must be remembered that if a loss occurs that will be the amount of money that you will have to face out of pocket before the insurance pays for the claim.

Deductibles vary by the insurance company and state of residence

Insurance is regulated by the laws of each state and insurers are monitored and required to comply with these laws very strictly. The same applies to deductibles, and insurance policies include specific rules and concrete descriptions of how deductibles work and are implemented in that state. For example, in some states, there are a variety of deductibles or a range of deductibles that can apply to policies. When shopping for homeowners or vehicle insurance, always ask about deductibles. For example, for homeowners insurance, whether owned or rented, there is a deductible range that generally starts at $ 500. However, if in that state there is an opportunity to choose another deductible, say one for $ 1,000,

Liability claims are not subject to deductibles

As a general rule, claims arising from civil liability, whether on a home or auto policy, are not subject to a deductible. The deductibles apply to the portions of coverage for the property (structure or contents of a house) or for the losses suffered in a car. In the case of vehicle insurance, the deductibles are triggered when the claim is for a collision or collision or for other damages covered under the collision or extensive portion. In a homeowners or renters insurance policy, the deductible will go into effect in the case of a loss on the structure or contents of the home, but will not go into effect if it is a claim against the owner (or tenant) in which the protection for civil liability, medical expenses, etc. comes into effect.

Flood insurance also have deductibles and these vary

In general, damage caused by a flood is not covered under the standard homeowner’s policy but can be obtained through the National Flood Insurance Program ( NFIP) and some specialized private insurers. The NFIP policy is a separate policy from your homeowner’s insurance policy and therefore has separate deductibles. You can choose the deductible you want for your flood coverage for the structure and a different one for the contents of your home. However, mortgage companies or home finance companies may require a certain specific amount in the deductible. In the case of flooding of a vehicle, these damages will be covered through the portion of the extensive insurance (comprehensive ) of auto insurance, but since it’s not mandatory coverage, many people may not have it.


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