What to know about deductibles

Here are some things to know about deductibles when deciding what policy to buy.
A deductible is the amount you have to pay before the insurance company will pay. A higher deductible generally means a lower cost for the policy, but it also means you’ll have to pay more out-of-pocket if you have a claim.

1  Know the math

A deductible may be a specific dollar amount or a percentage. If a policy has a deductible that’s a percentage, make sure you know how that translates to a dollar amount. Here are two examples for homes insured for $150,000:

  • Policy A has a $500 deductible. A hail storm destroys the home’s roof, and the cost for repairs is $6,500. Policy A will pay $6,000 of the cost to repair the roof.
  • Policy B has a 5 percent deductible – or $7,500. If the home needed $6,500 in roof repairs, Policy B would not pay anything because the amount of repairs is less than the deductible.

2  Know when it applies

Deductibles for home and auto policies work differently than deductibles for health policies.

For health policies, the deductible usually covers a year.

For home and auto policies, the deductible will be applied to each claim. If you have a wreck in February and your car gets broken into in June, your insurance company will subtract the same deductible amount from the damages of each claim before paying.

3  Know what works for you

In general, the higher the deductible, the lower the cost for the policy. When deciding what deductible is right for you, think about how much you can afford to pay if your property is damaged. Remember that filing small claims may affect how much you have to pay for insurance later. Switching from a $500 deductible to a $1,000 deductible can save as much as 20 percent on the cost of your insurance premium payments.


 

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Last updated: 03/09/2017

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