Deductibles are a critical part of insurance policies. Whether you have car insurance, home insurance or even health insurance, chances are good there are deductibles on your policy.
What is a Deductible?
In the simplest terms, a deductible is the dollar amount that you pay for a claim. Here’s an example:
You have an auto insurance policy with a $250 comprehensive deductible. You hit a deer (animal hits are comprehensive claims) and the cost to repair your vehicle is $1000. Your insurance company will subtract $250 from $1000 and send you a check for $750. Basically, the $250 is “deducted” from the claim payout.
What kinds of deductibles are available?
In the example above, the $250 deductible is called a flat deductible. It means it applies the same to all covered losses. So for ANY comprehensive loss, you pay $250. Car insurance typically uses a flat deductible.
You’ll see by-peril deductibles commonly with property insurance (home, renters, condo, farm, etc.). Perils are simply the covered causes of claims. For example, fire, lightning, hail and wind are all perils.
These types of deductibles are a newer invention, and were introduced as a result of catastrophic weather events (wind was really the big one- think tornados and hurricanes). Here’s how they work:
Your property policy includes a $1500 wind and hail deductible and a $1000 all other deductible. What this means is that for any wind or hail claims, you’ll contribute $1500 toward that claim. For any other types of claims (fire and lightning from above), you’ll contribute $1000 toward the claim.
It’s important to note that the more likely a peril is to happen (think wind), then the adjustment of that deductible (either upward or downward) will cause a greater premium difference.
Percentage deductibles are also very popular with property insurance. Instead of a flat dollar amount like previously mentioned, the deductible is actually a percentage amount of the property coverage.
If you own your home, then the deductible is based off a percentage of Coverage A, which is the dwelling. So if you have $200,000 for Coverage A and a 2% deductible, your contribution toward the claim will be $4000 ($200,000 X 2%). With a 5% deductible (which is also pretty common), your contribution would be $10,000. WHAT? Yep, these deductibles come as a surprise to many people, and chances are good your policy may have one. And you’ll be really surprised when you have a claim and suddenly have to pay a lot more than you expected. So double check and know what you have!
If you rent, then the percentage is based off Coverage C, which is your contents. The math would work the same, however.
Calendar year deductibles
Mostly related to health insurance, calendar year deductibles apply to a calendar year (clever huh?) and simply mean that you have the entire year to incur medical expenses toward that deductible. Once you reach the deductible, no matter what part of the year, then you’re done with the deductible.
So instead of a deductible per occurrence, like a wind or fire claim, you have a deductible for a period of time and your medical bills accumulate toward that deductible.
Know Your Deductibles and What They Mean For You
The lesson here? There are a lot of deductibles out there and if you don’t know what they mean or how they work, you could get a nasty surprise at claim time. And trust me, claim time is NOT when you want to make this discovery. You’re already upset and stressed out. Get the facts BEFORE the claim happens!
Unsure about your deductibles and worried what might happen at claim time? Let us review your policies and we’ll be happy to explain what you currently have and what we can offer (it may be better for you!) Give us a call at (937) 592-4871 or fill out our contact form with your request.
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