Understanding your insurance deductibles | III

defined deductible

A deductible is the amount of money you are responsible for paying for an insured loss. When a disaster strikes your home or you are in a car accident, the deductible is subtracted or “deducted” from what your insurance pays on a claim. deductibles are how risk is shared between you, the policyholder, and your insurer.

Generally speaking, the higher the deductible, the less you’ll pay in premiums for an insurance policy. A deductible can be a specific dollar amount or a percentage of the total insurance amount on a policy. the amount is set by the terms of your coverage and can be found in the declarations (or on the front cover) of standard homeowners, condo owners, renters, and auto insurance policies.

Reading: What do you mean by deductible in insurance

State insurance regulations strictly dictate how deductibles are incorporated into policy language and how deductibles are implemented. these laws may vary from state to state.

how deductibles work

A specific amount would be subtracted from your claim payment if you have a deductible dollar amount. For example, if your policy states a $500 deductible and your insurer has determined that you have an insured loss of $10,000, you will receive a claim check for $9,500.

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Percentage deductibles generally only apply to homeowners policies and are calculated based on a percentage of the home’s insured value. therefore, if your home is insured for $100,000 and your insurance policy has a 2 percent deductible, $2,000 will be deducted from any claim payment. in the event of an insurance loss of $10,000, you would be paid $8,000. for a loss of $25,000, your claim check would be $23,000.

Note that with auto insurance or a homeowners policy, the deductible applies each time you file a claim. There are exceptions to this practice in Florida and Louisiana, where hurricane deductibles apply once per season rather than per storm.

Deductibles generally apply to property damage, not the liability portion of auto or homeowners insurance policies. For example, with a homeowners policy, a deductible would apply to property damaged in an arson fire at an outdoor grill; however, there would be no deductible against the liability portion of the policy if a burned guest made a medical claim or filed a lawsuit.

raising your deductible can save you money

One way to save money on a homeowners or auto insurance policy is to increase the deductible. so if you’re shopping for insurance, ask about deductible options when comparing policies.

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Increasing your auto insurance dollar deductible from $200 to $500 can reduce the optional costs of collision and comprehensive premiums. going to a $1,000 deductible can save you even more. Most homeowners and renters insurers offer a minimum deductible of $500 or $1,000, and raising the deductible to more than $1,000 can save on the cost of the policy.

Of course, remember that you’ll be responsible for the deductible in the event of a loss, so make sure you’re comfortable with the amount.

disaster deductibles for homeowners

Standard homeowners insurance covers wind and hail damage caused by storms and hurricanes. flood and earthquake policies are purchased separately. But each of these disasters has its own deductible rules. If you live in an area at high risk for one of these natural disasters, understand how much deductible you’ll have to pay if a catastrophe strikes.

Start here, check your policies and talk to your insurance professional to find out exactly how your deductibles work.

• hurricane deductibles. In hurricane-prone states, special deductibles may apply for homeowners insurance claims when the cause of the damage is attributable to a hurricane. Whether a hurricane deductible applies to a claim depends on the specific “trigger” selected by the insurance company. These triggers vary by state and insurer and generally apply when the National Weather Service (NWS) officially names a tropical storm, declares a hurricane watch or warning, or defines a hurricane’s intensity in terms of wind speed. Hurricane deductibles are generally higher than deductibles on other homeowners policies and usually take the form of a percentage of the policy limits. In some states, policyholders may choose to pay a higher premium in exchange for a traditional dollar deductible; however, in high-risk coastal areas, insurers may make the deductible percentage mandatory.
• wind/hail deductibles function similarly to hurricane deductibles and are more common in places that normally experience severe wind and hail storms. These include Midwestern states (such as Ohio) and around Tornado Alley (including Texas, Oklahoma, Kansas, and Nebraska). wind/hail deductibles are most commonly paid in percentages, typically 1 to 5 percent.
• Flood insurance offers a variety of deductibles. If you have, or are considering buying, flood insurance, make sure you understand your deductible. Flood insurance deductibles vary by state and insurance company and are available in dollar amounts or percentages. In addition, you can choose one deductible for the structure of your home and another for the contents of your home. keep in mind that your mortgage company may require that your flood insurance deductible be below a certain amount to make sure you can afford it).
• earthquake insurance has percentage deductibles ranging from 2 to 20 percent of your home’s replacement value, depending on location. Insurers in states with higher-than-average earthquake risk (such as Washington, Nevada, and Utah) often set minimum deductibles at around 10 percent. in california, the california earthquake authority (cea) basic policy includes a deductible that is 15 percent of the replacement cost of the main structure of the home and starts at 10 percent for additional coverages (such as on a garage or other dependencies).

next steps: steps to follow in case of a homeowners claim.

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