A deductible is a predetermined amount that must be paid out of pocket by the policyholder before an insurance provider pays any benefits. A deductible is either a fixed dollar amount or a percentage of the total amount of coverage. In health insurance, a deductible refers to the amount you must pay each year before your policy begins to cover covered medical services and medications. Depending on the cause of a claim, the insurer can set a variety of deductibles. In other words, a homeowners insurance policy can include multiple deductible amounts depending on the nature of the loss, such as theft, fire, and natural disasters.
How Does Insurance Deductible Work?
The term deductible is one of the many clauses that insurance companies use to set the amount a policyholder must pay whenever a claim is filed. If disaster damages your house or you are involved in a car accident, your deductible is deducted from your insurance claim payment. Let’s say, for example, if your insurance policy specifies a $1,000 deductible, and your insurer determines that you have an insured loss of $20,000, you will receive a $19,000 claim check. As a rule, you can easily find the deductible amount on the front page of homeowners’ insurance policies, health insurance policies, and auto insurance policy forms. Whether you have auto insurance or homeowners insurance, the deductible applies each time you file a claim!
Insurance Deductibles: How Should You Choose Them?
Deductibles can help you lower your insurance premiums. By opting for a high deductible amount, you can reduce your monthly insurance premiums. A lower monthly premium usually means a higher deductible. On the other hand, insurance plans with higher premiums generally have a lower deductible. Remember that if you experience a loss and file a claim, you will be responsible for paying the deductible, so choose a deductible that you feel comfortable paying.
The Bottom Line
Deductibles are a mandatory part of any insurance contract. When insuring your car or home, you should understand the importance of deductibles in order to maximize your insurance coverage. Over time, you can save a lot of money by doing this!