What is it?
Let's start with the legal description first. Since we are talking about insurance, the deductible is the out-of-pocket expense that an insurance policy holder would have to pay before the insurance company would begin to settle the claim and pay expenses.
Simply put, it's the money deducted from the entire amount of the claim, and it's paid by the insurance policyholder.
How is the deductible applied?
Human beings are funny creatures. This we all know, but it helps to make the world a very interesting place. Most of us, when it comes to parting with our money, can be extremely reluctant. So an insurance deductible is something that many policyholders may sometimes complain about.
The main purpose behind the deductible is to prevent needless or small claims.
If you have a good broker, he'll likely explain to you that insurance is for preventing a serious financial loss. Some insurance consumers, if they had a smaller claim at $50 or $100, would rather the insurance company pay for that small claim rather than themselves. So the average deductible on a typical home insurance or auto insurance maybe $500 or $1,000. This simply means that should you have a claim at $5,000 in damages, you'd then have to pay the deductible, let's say $500, and the insurance company would then pay the rest.
Since we touched on car insurance, it should be noted that the deductible is only payable for at-fault accident claims or claims that fall under comprehensive coverage, fire, and theft coverage.
The insurance deductible is waived for auto accidents that are 100% not at fault. So if someone rear-ended you from behind, while you're at a stoplight, and the accident is deemed to be 100%, not your fault then your insurance deductible would be waived. The insurance company will pay the full expense of the insurance claim.
How does the insurance deductible save me money?
There are many ways you can use the insurance deductible to help a lower your insurance premium:
1. Many people choose a higher deductible, meaning more money is coming out of their a pocket in the event of a claim.
2. Some people feel they are extremely safe drivers. Because they obey the rules of the road, the likelihood of them being at fault in the accident is slim.
3. Going with a higher deductible and driving many years without an accident. You would save several hundred dollars by going with a higher deductible on your vehicles and property.
Are there different types of deductibles?
Insurance can be complicated, and that is why I would always urge you to seek advice from a professional insurance broker who is well-equipped to help you navigate through the many things on an insurance policy that can help to save you money.
The home insurance policy can have several deductibles on the same insurance policy. You can have a disappearing deductible, a theft deductible, a water damage deductible, a wind, a hail. and an earthquake deductible. All of these can be set in a way that can affect your insurance premium.
Contrary to popular belief, water is the number one cause of insurance claims for property insurance. If you want to reduce your premium in this area, this is a great place to start by finding out your options and playing with the higher deductible to see how it affects your insurance premium.
In the long run insurance deductible help keep the premiums down.
Insurance is a lot about probability, which means the more claims there're in certain areas, the more insurance company may deem that area a higher risk, thus raising insurance rates. The insurance deductible stops the incessant and frivolous claims for the many risks that happen on a day-to-day basis.
A few final thoughts about deductible
Should you lease a vehicle, please note, that the leasing company will have a say in what level of deductible you are able to choose for your vehicle:
1. Some will not allow you to have a deductible higher than $1,000.
2. The insurance company also may mandate that you have a certain type or amount of deductible on your insurance policy. If you have a high-value vehicle, they may sometimes have the minimum deduct at $2,500 or $5,000 for vehicles worth more than a $100,000 or $150,000.
3. Should you also have a frequency of claims, the insurance company will send you a letter explaining that they're increasing the deductible on your policy due to a claims frequency.
There isn't a way to escape from paying the deductible. It'll be held hostage by the contractor or the automobile mechanic shop. If the damage was $5,000, and you had a $1,000 deductible, the insurance company would send a check for $4,000 to the mechanic shop, requiring the policyholder to pay the other thousand to get the vehicle released.
Hopefully, we have answered some of your questions!