What is a Deductible and How Does it Work?

Every standard insurance policy has something called a deductible. On an auto policy with comprehensive and collision coverage your deductible will be a set dollar amount. Usually $500 or $1000. On a homeowner's policy the deductible is a small percentage of home's insured value.


So what does that actually mean?


Simply put, a deductible is the amount of money you would be responsible for paying in the event of a claim and generally applies to property damage. Deductibles do not apply to the liability portion of your insurance policy.



Example: Your car gets hit by another driver causing $10,000 in damages to your vehicle. If your deductible is $500 that means you are responsible for paying $500 and the insurance company will pay the rest. In this case that would be $9,500.




A homeowner's claim is a little different when it comes to deductibles.


Example: A tree falls on your house and causes $20,000 in damages to your home. The insured value on your home is $100,000 and your deductible is 2%. This means that $2000 would be deducted from the amount of the claim paid out by the insurance company. So in this case your claim payment would be $18,000.


What should your deductible be?


Well, that depends. If you're looking to save money on your insurance, raising your deductible will definitely lower your rates. Before you do that though, remember that this is the amount of money you will have to come out of pocket in the event of a claim. Be sure to talk to you agent and assess the pros and cons of increasing your deductible amount to lower your rate.






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Email: dave@thedkia.com

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