A discussion about deductibles
If you have any kind of insurance – and who doesn’t – you have likely paid or at least, discussed a deductible with your insurance provider.
The basics are pretty easy to understand: You, as the policyholder, agree to pay a certain amount or percentage toward the overall claim paid by your insurer. In the case of auto or home insurance, the amount of your deductible usually ranges from a few hundred to a few thousand dollars.
But why do deductibles exist anyway? It’s a matter of shared risk. The insurer pays the claim, and in turn, you are rewarded with a lower insurance premium. Generally, the higher the deductible, the lower your premium cost. While it may not seem like much, the amount is significant if you consider the millions of policyholders.
But here are some things you may not know about deductibles.
For example, if an accident involves two or more policyholders, the deductible only applies for the first-party coverage. That means if you are at fault, you would pay a deductible on your insurance coverage that takes care of your vehicle. Your liability insurance would cover the other vehicle with no deductible. The same goes for liability coverage for your home.
In North and South Carolina, your deductible is usually a set amount agreed upon when you purchase coverage, such as $500 or $1,000. In some cases, there is a required minimum deductible. In some other states, your deductible may be a percentage of the insured value of your property. For example, your home is insured for $300,000 and you have a 1 percent deductible. This means you would pay a $3,000 deductible towards your claim.
Deductibles also vary with the type of coverage. Most auto policies have a per-incident deductible, meaning you would pay a deductible each time you have a claim. If you have several incidents, you will have a deductible to pay for each incident. In the case of health insurance, you generally have an annual deductible to meet, per individual. Most family health coverage policies are set up with a maximum deductible per family that must be paid in one year.
Does it ever make sense to pay out of pocket and not file a claim with your insurer? If the amount of damage is less than the amount of your deductible, you most certainly would pay it directly and not file insurance. You may also consider paying directly and not filing a claim if the amount of damage is reasonable to pay directly, as a claim may cause an increase in your annual premium (depending on the type of claim and your claims history). Home insurance is not intended to be used for small, maintenance-type repairs, but rather, catastrophic losses such as fire or storm damage. As a result, most home insurance policies have a higher deductible to discourage small claims.
In the case of medical, you always want to file your insurance because any amount filed will count towards your annual out-of-pocket maximum, even if you end up paying it yourself. And don’t confuse your deductible with your co-pay. You may have a co-pay at each visit, as well as an annual deductible that must be met before the medical insurance pays a claim. Certain wellness services are often exempt from the annual deductible, thus encouraging you to take advantage of things like annual physicals and mammograms.
So how do you know what your deductible should be? For car insurance, your deductible should be an amount you can afford to pay out of pocket in the event you need to file a claim with your insurance. That way, you are not paying a higher premium for coverage when you may not need to file a claim. A medical plan may offer a similar incentive. If you could afford the difference in the event of a major accident or surgery, you can safely go with a higher deductible.
Dumbfounded when it comes to deductibles? Don’t worry. Your Allen Tate Insurance agent can clearly explain what deductibles you have on each of your policies and any options you have to change your coverage. Insurance is a personal decision, and only you can decide what’s best for you and your budget.