When it comes to insurance policies, one term that you might stumble across is deductible. By definition, a deductible is the amount of money that you must pay out of pocket before your insurance provider starts covering the costs of your claim. The lower the deductible, the higher your insurance premium will be, and vice versa. In this article, we’ll dive deeper into the nitty-gritty of insurance deductibles to give you a better understanding of what it means.
What is an Insurance Deductible?
Simply put, an insurance deductible is the amount of money you are required to pay before your insurance policy kicks in. Deductibles vary between policies, but in general, the higher your deductible, the lower your insurance premium will be.
For example, if you have a car insurance policy with a deductible of $500 and you get into an accident that results in $2,000 worth of damage, you will need to pay $500 out of pocket before your insurance provider covers the remaining $1,500.
It’s important to note that not all insurance policies have deductibles. Certain types of insurance, such as life insurance, typically do not have deductibles.
Types of Deductibles
There are two main types of deductibles: per-incident and annual. Here’s what you need to know about each type:
A per-incident deductible is the amount of money you need to pay for each individual claim. So, in the previous car insurance example, if you were to get into another accident that resulted in $2,000 worth of damage, you would need to pay an additional $500 deductible before your insurance provider covered the remaining $1,500.
Not all insurance policies have per-incident deductibles, and the amount varies depending on the policy. Some policies might have a $500 per-incident deductible, while others might have a $1,000 per-incident deductible.
With an annual deductible, you only need to pay the deductible once per year, regardless of how many claims you make. So, if you have a health insurance policy with a $1,000 annual deductible and you make two claims in a year, you will only need to pay the deductible once.
Annual deductibles are more common with health insurance policies, but they can also be found in other types of insurance policies. The amount of the annual deductible varies depending on the policy.
How Do Deductibles Affect Your Premium?
As mentioned earlier, the higher your deductible, the lower your insurance premium will be. This is because insurance companies assume that you will be responsible for a portion of the cost of your claims, so they lower your premium to compensate for that.
Let’s take a look at an example. Say you are getting a car insurance policy, and you have two options:
As you can see, option A has a lower deductible but a higher premium, while option B has a higher deductible but a lower premium. It’s up to you to decide which option makes the most sense for your budget and lifestyle.
What is the difference between a deductible and a premium?
Your insurance premium is the amount of money you pay to your insurance provider in exchange for coverage. Your deductible is the amount of money you are required to pay out of pocket before your insurance provider starts covering the costs of your claim.
Are there any insurance policies that don’t have deductibles?
Yes, certain types of insurance policies, such as life insurance, typically do not have deductibles.
Can you change your deductible after you purchase an insurance policy?
Yes, in most cases, you can change your deductible after you purchase an insurance policy. However, it’s important to note that changing your deductible could affect your insurance premium.
What happens if you can’t afford to pay your deductible?
If you can’t afford to pay your deductible, you might be able to work out a payment plan with your insurance provider. Be sure to contact them as soon as possible to discuss your options.
Do deductibles apply to all types of claims?
No, deductibles only apply to certain types of claims. For example, with car insurance, deductibles typically only apply to claims related to damage to your vehicle or property damage caused by your vehicle. They do not apply to liability claims or claims for injuries sustained in an accident.
Understanding insurance deductibles can help you make informed decisions when it comes to selecting an insurance policy. By taking the time to evaluate your budget and your risk tolerance, you can choose a deductible that is right for you. Remember to read the fine print of your policy and don’t hesitate to contact your insurance provider if you have any questions or concerns.