What’s That Deductible Thing?

February 2018
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Photo by NeONBRAND on Unsplash

You hear it all the time when it comes to insurance: deductibles. Large or less large, we get asked about insurance deductibles all the time. Most of our customers have heard the term, but they aren’t quite sure to what it refers. More often, they know their deductible and what it’s for, but they aren’t clear on how to select the best deductible amount for them. So today, we’re here to review insurance deductibles, how they work, and how best to decide which deductible works for you.

What is an Insurance Deductible?

An insurance deductible is a pre-determined amount of money you must pay toward a claim before the insurance coverage kicks in to cover the remaining cost of repairs, replacements, or other things that result from a claim. In other words, you pay a set fee to initiate the insurance company stepping in and covering or compensating the remainder.

When you buy your insurance policy, you are asking the insurance company to have your back if a loss is going to put you at financial risk. In response, the insurance company agrees to cover you, AS LONG AS you pay the first part of the loss through your deductible amount and have paid your monthly premiums.

High vs Low Deductible

The size of your deductible can raise or lower the amount you pay on your insurance premium. The higher your deductible, the lower you will pay in monthly premiums. And vice versa, if your deductible is on the lower end, you will pay higher monthly premiums. So, if you lower your deductible, your insurance premium goes up, because if you have a loss, you won’t have to pay as much on your deductible. To have that convenience, the insurance company raises your premium amount. We often think that raising a deductible will save you money in the end on your insurance. Or that lowering the deductible is the safer option if something should happen. But a lot of factors go into the best decision.

At the end of the day, you, the customer, gets to make the final decision on how much you want your deductible amount to be. Different situations and policies may dictate different choices; our agents will gladly help you make sense of your choices and why you might make one choice over another.

Deciding the Right Deductible

So here’s 2 scenarios to help you out:

A Lower Deductible = a Higher Monthly Premium.

Consider your auto policy. Say you got an in an accident and the damage totaled $3000. Can you immediately afford $1,000 out of pocket? If that sounds tough, we’d suggest a lower deductible. So now, if you had a claim worth $3,000, and you had a deductible of only $500, then that’s all you’d have to pay out of pocket. If you can afford more out of pocket, then we’d suggest a higher deductible to see monthly savings on your premium. It all depends on your personal financial situation.

A Higher Deductible = A Lower Monthly Payment

Now consider your homeowner’s policy. In most cases, homeowners aren’t looking to make claims that are worth $1,000 out of pocket, and in some cases, they wouldn’t want to file a claim that’s worth even $2,000 or more. This is because any time you file a claim on your insurance policy, it can affect the price of your premium, so you will end up paying for that claim overtime in your monthly payments. It’s best to file claims that are worth much more, covering severe property damage. If you have a larger deductible on a home insurance policy, but you suffer major loss, you’ll have saved on your premium in the meantime and still be able to come back from large loss.

Our agents are here to help you make the best decision with the most information. We can help you through this process in person, or over the phone. We care, and our job is to find you the best policy for the best price. Contact our agents today!

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