Understanding Your Deductible

 
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Understanding Your Deductible

Your Insurance Deductible is the amount that you are responsible for in the event that you suffer a claim. While higher deductibles will generally mean a lower insurance premium, it's important to pick the deductible that's right for you.

Here we'll go over some of the options available. As always, please consult with your Local Insurance Agent for the insurance options that are available to you and that best suit your needs. Please also check out our other stories on Understanding Your Insurance Policy.

Flat Dollar Deductibles

Flat dollar deductibles are the most common, ranging from as low as $ 50 to thousands of dollars. The most common flat rate deductibles for homeowners policies are $ 250.00, $ 500.00, and $ 1,000.00, but many options are available.

As an example, if you suffered a $ 10,000 Water Damage claim at your home and your deductible was $ 500, your insurance company's responsibility would be $ 9,500.

By-Peril Deductibles

Some Insurance Companies offer you the option to choose different deductibles by cause of loss (peril). What this means is that if you feel a particular peril is unlikely or you would prefer to have lower deductibles for claims that traditionally are less costly, you can do so. It is important to keep in mind however that, regardless of how unlikely you feel a claim may be, it is still possible. For this reason, it is important to consider your ability to afford the deductible amount in the event that you do suffer a claim.

For instance, if you had a $ 500 deductible on Fire and a $ 1,000 deductible on Storm Damage and suffered a $ 10,000 claim as a result of a storm that passed through the area, your insurance company's responsibility would be $ 9,000. This is because you would be responsible for the deductible you had selected for the storm damage peril.

Percentage Based Deductibles

While flat dollar deductibles are still the most common, some insurance companies have begun offering deductibles based on a percentage of your insured value. In addition to being a bit confusing to the average insured, some policies may also specify a percentage based deductible for structure and a separate deductible for contents. As most policies include an annual coverage increase intended to address inflation and rising material and labor costs, it's important to keep in mind that percentage based deductibles will also increase along with any increases in coverage.

Consider for a moment that you have $ 100,000 in insured value on your home and a 2 percent deductible. What this means is that you are responsible for 2 percent of that $ 100,000 policy limit, or $ 2,000. So, if you suffered a claim that totaled $ 10,000, your insurance company would be responsible for $ 8,000.

Special Term Deductibles

In areas where hurricanes or earthquakes are common, it has become standard practice for insurance policies to include flat dollar deductibles for most perils, with hurricane and earthquake damage carrying a percentage based deductible. It is reasonable to expect this trend to continue and apply to areas that may be prone to wild fires or other specific perils over time.

Flood Insurance also carries with it a separate deductible from the remainder of your insurance policy and can vary significantly based on the options selected.

What Can You Afford

When choosing a deductible, it's important to consider what you can afford to pay in the event that you suffer a claim. You certainly don't want to choose a deductible that is higher than you are able to afford or that would place too great a strain on your finances.

Likewise, it's important to keep in mind that reported claims will likely result in an increase in your annual insurance premium. It may not make sense to report smaller claims, even ones that are higher than your deductible, as you will have an increased insurance cost later. For example, if you suffer a claim that is expected to cost $ 1,000, yet have a $ 500 deductible, it may make sense to pay for these repairs out of pocket rather than report a claim.

What Happens If You Have A Claim?

Homeowners that report a claim will be responsible for their deductible, but this can be handled in a number of ways.

Deducted from your claim payments – By far the most common way that your deductible will be addressed by your insurance company is by deducting it from the claim payments issued to you. Most often, this will be deducted from the payments intended for the repair services, which will result in the repairs payment not matching the estimate of repairs exactly. In some cases your deductible may be taken from other payments, such as for mitigation and drying services that may have been performed at your property.

Deducted from personal property – If you had content items that were damaged as a result of the claim, your insurance company may apply your deductible to the replacement of these items. This is most common in cases where the insured may wish to take their time shopping for, or intends to upgrade, a replacement.

Credited toward work that you performed – In cases where you may wish to perform certain work as it relates to your claim, without otherwise being compensated, your insurance company may agree to credit this work towards your deductible. As an example, if you suffer a fire or smoke damage claim and are washing dishes that are affected by soot, your insurance company may credit something towards your deductible for this work.

We hope you found this information helpful! Should you suffer a claim and have a need for any of our services, please do not hesitate to Contact Us!

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