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3 Things to Know About Deductibles

October 20, 2021

What does deductible mean?

In the event of a coverable loss, your deductible is the price you pay first before the insurance company pays the rest of the loss amount. Say your collision deductible is $500 on your car insurance policy, and you get in an accident that is your fault and your car has $2,000 of damages, you'll pay the first $500 and the insurance company will pay the other $1,500 to fix your car.

How big of a factor does your deductible have on your rate?

Outside of the basic liability and dwelling coverages on your car and home insurance policies, your deductible might be one of the most important factors on your insurance rate. With this, you have to weigh the risk of a coverable loss. Switching from a $1,000 to $1,500 deductible on your home policy, you may save $250 on your annual premium (discretion - everyone is unique and rates are different by the person so you may not save $250). If you do save $250 annually by making that switch, you have to go 2 years without a claim for it to make sense. At the end of the day, your deductible helps the insurance company know how much of a burden you are willing to bear in the event of a coverable loss.

How knowing your deductible helps when turning in a claim?

You have to know what your deductible is when thinking about turning in a claim. Of course, if the amount of your coverable loss is way over your deductible, then it would make sense for you turn turn in a claim against your insurance. You would be out the amount of your deductible first, and the company would pay the rest. If your loss is less than or a little more than your deductible, the insurance company wouldn't pay out anything or would pay out a very small amount, so it wouldn't be worth it to turn in a claim. Every time you turn in a claim, even if $0 or a small amount is paid out, your renewal rate has a chance to increase. The bottom line is you have to know what your deductible is before thinking about turning in a claim.

You can think of your car and home insurance deductibles very similarly to your health insurance deductibles. With both, you have to figure out what kind of a financial burden you can handle if a bad situation happens to you. With health insurance, it's your own health of course. With car and home insurance, it are things that are very valuable to you. I would hope your health would be your first priority, but your car and home are probably right there behind your health. Think about your deductibles for your car and home insurance, because just like health never know when something bad is going to happen. 

One final thought on insurance in general. I know a lot of people think of insurance selfishly, and think about how much they pay each year and how much the insurance company ends up paying them. Car and home insurance is something that you buy that you hope you never have to use. Bad things are going to happen, though. They may not happen to you, but what happens if they happened to your neighbor, family member or your best friend. Try and think that your annual premium is helping those people that had a bad thing happen to them.

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