How does your insurance deductible work?

To get the most out of the money you invest in insurance, knowing how the deductibles associated with policy work and when you file a claim is essential.

The deductible is the part that is “subtracted” from the payment made by the insurer for the loss suffered by the insured.

Traditionally, in the insurance contract, deductibles divide the risk between the insured (the client) and the insurers. Thus, when a loss occurs, the insured pays a portion of it out of pocket, known as the deductible.

The deductible can be a specific amount, a figure in dollars, or a percentage of the total amount of the insurance contracted in the policy. Generally, the higher the deductible, the lower the premium paid for an insurance policy. The deductible amount is listed on the front page of the “statements” of a homeowners insurance policy or auto insurance policy, which generally means it is found on the front page or cover of the document.

Here’s how a deductible works: If you have a deductible set as a specific amount, let’s say $ 500, that money, the $ 500 is the portion of the damages you will pay. The insurance will pay the money above that $ 500 that is necessary. If the insurer determines that your loss is $ 10,000, then the amount of the award or the check that you will receive will be $ 9,500 ($ 10,000 of the lossless $ 500 of the deductible).

The deductibles expressed in percentages are calculated based on the total insurance amount of the insured property. Let’s say your home is insured for $ 100,000, and you have a deductible equal to 2%, that is, a $ 2,000 deductible. If there is a claim, the $ 2,000 will be “deducted” from the claim or the compensation check you receive. For a loss of $ 10,000, a 2% deductible means $ 2,000 less. That is, the check would be for $ 8,000 ($ 10,000 loss minus $ 2,000 deductible).

In many parts of the country, deductibles have been steadily increasing. In hurricane-prone states, where there is a higher risk of a catastrophic event, special deductibles may be allowed on homeowners insurance claims when a hurricane causes damage. Typically, hurricane deductibles are elevated and almost always expressed as a percentage, not a specific amount.

Deductibles on a property insurance policy work differently than deductibles on other insurance, such as health insurance. In a health policy, there is a deductible that accumulates for the year. With an auto or home insurance policy, the deductible works differently – it applies to every claim filed. An exception to this rule is how hurricane deductibles are used in Florida. Hurricane deductibles in Florida are not subtracted with each storm or hurricane but are accumulated by the season.

Hurricane deductibles mainly exist because they help keep insurance coverage available for coastal communities through private insurers and keep their prices affordable. The interest and willingness of private insurers to offer range in many areas help maintain competition and expenses, giving consumers more choice. That way, consumers residing in areas where there is competition can compare prices and services when looking for insurance for their properties.

These are several of the essential details to know about deductibles:

Increasing the deductible can save money on insurance 

An excellent way to save money on home or auto insurance is by increasing the amount of your deductible. For example, in an auto insurance policy, increasing the deductible from $ 200 to $ 500 can reduce the portion of the collision insurance ( collision ) and the extensive or coverage for other damages ( comprehensive ) between 15% and 30%. Raising it to $ 1,000 can reduce the premium price by 40%. But it must be remembered that if a loss occurs, that will be the amount of money that you will have to face out of pocket before the insurance pays for the claim.

Deductibles vary by the insurance company and state of residence

The laws of each state regulate insurance, and insurers are monitored and required to comply with these laws very strictly. The same applies to deductibles, and insurance policies include specific rules and concrete descriptions of how deductibles work and are implemented in that state. For example, in some states, there are a variety of deductibles or a range of deductibles that can apply to policies. When shopping for homeowners or vehicle insurance, always ask about deductibles. For example, for homeowners insurance, whether owned or rented, there is a deductible range that generally starts at $ 500. However, if there is an opportunity to choose another deductible in that state, say one for $ 1,000, Savings of up to 20% could be achieved on your home insurance premium.

Liability claims are not subject to deductibles

Generally, claims arising from civil liability ( liability), whether on a home or auto policy, are not subject to a deductible. The deductibles apply to the portions of coverage for the property (structure or contents of a house) or the losses suffered in a car. In the case of vehicle insurance, the deductibles are triggered when the claim is for a collision or collision or other damages covered under the collision or extensive portion. In a homeowners or renters insurance policy, the deductible will go into effect in the case of a loss on the structure or contents of the home. Still, it will not go into effect if it is a claim against the owner (or tenant) in which the protection for civil liability, medical expenses, etc., comes into effect.

Flood insurance also have deductibles and these vary

Flood damage is generally not covered under the standard homeowner’s policy but can be obtained through the National Flood Insurance Program.–NFIP) and some specialized private insurers. The NFIP policy is separate from your homeowner’s insurance and therefore has separate deductibles. You can choose the deductible you want for your flood coverage for the structure and a different one for the contents of your home. However, mortgage companies or home finance companies may require a specific amount in the deductible. In a vehicle flood, these damages will be covered through the comprehensive insurance portion of auto insurance, but since it is not mandatory coverage, many people may not have it.

The deductibles to be used in cases of hurricanes, earthquakes or hail are usually a percentage of the total coverage

  • In cases of earthquakes: Deductibles can be within a range of 2% to up to 20% of the total replacement value of the structure. Insurers in states most at risk for earthquakes, such as Washington, Nevada, and Utah, generally have a minimum deductible of 10%. Similarly, policyholders can increase the deductible to save a little more on their earthquake insurance policies.
  • California residents can purchase earthquake insurance through the California Earthquake Authority (CEA). CEA’s standard policy includes a deductible of 15% of the replacement cost of the home. The basic policy covers only the structure of the main house (the surrounding garages, annexes, swimming pools, sheds, etc., are not usually covered in the basic policy). The personal belongings or contents of the home are usually covered up to $ 5,000 and the amount for “Loss of use”, or additional living expenses outside the residence, while it is being repaired (ALE – Additional Living Expenses), has coverage up to $ 1,500. However, as many people need more coverage, the CEA also offers this with a 10% deductible for additional structures, more coverage of up to $ 100,000 for personal belongings (house contents), and up to $ 15,000 in loss of use.
  • In cases of hurricanes and hail: It is necessary to note the difference between two types of damage that can occur by wind: damage by hurricanes (hurricanes) and damage by wind and hail storms (wind/hail) and the different deductibles that may be awarded. To award a deductible for a hurricane, a “trigger event” must occur that has been determined by the insurance company as the determining factor that a hurricane occurred. This triggering event varies from state to state and each company selects the one that will apply to its policies. However, it is usually about situations such as when the National Weather Service–NWS) officially baptizes a tropical storm, or declares a hurricane watch/warning) or defines the strength and speed of a hurricane into categories. Due to all these possible combinations, homeowners and renters need to talk with their insurance agent or the representative of the insurance company to know exactly what are the exact conditions in which this type of deductible will apply in their particular cases. While in some states policyholders have the option of paying a little more for their premiums but keeping the insurance deductible at a specific dollar amount – not as a percentage of total coverage, this is not always possible in coastal or prone areas. suffer hurricanes since in these conditions the hurricane deductible is usually represented as a percentage of the total coverage.
  • Hurricane deductibles are not new: The hurricane deductible option is not something new, they have existed for more than 20 years after Hurricane Hugo hit the coasts of the state of South Carolina in 1989 and Hurricane Andrew hit Florida in 1992. These two major events caused insurers to review their enormous exposure to catastrophic risks and found that to get enough reinsurance they had to lower those risks. Therefore, to obtain the correct reinsurance and to continue offering coverage in these highly risky areas, it was necessary to increase the portion that the insured shared of that specific hurricane risk with the figure of the hurricane deductible in the policies.