How Adjusting Your Deductible Can Help Defray Insurance Costs

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Understanding the role deductibles play when insuring a car or a home is an important part of getting the most out of your insurance policy. In these challenging economic times, it may be beneficial to increase your deductible to save on your annual premium to help soften the cost of insurance within your total budget.

The first concept that many people need to realize is that insurance should be saved for the more costly occurrences. All of us in insurance have had clients insisting on using their insurance to pay for a $1200 fence repair with a $500 deductible. That makes no sense. It isn’t usually the first claim that adversely affects your premium, but if you have a second, larger claim, your insurance costs will truly escalate.

A deductible is basically the amount “deducted” from an insured loss. Deductibles have been an essential part of the insurance contract for many years and represent a sharing of the risk between the insurance company and the policyholder. When repairing your home or replacing personal possessions, the amount of the deductible would come out of your own pocket.

A deductible can be either a specific dollar amount or a percentage of the total amount of insurance on a policy. Generally speaking, the larger the deductible, the less a consumer pays in premiums for an insurance policy. Deductible amounts can be found on the declarations (or front) page of standard homeowners and auto insurance policies.

Here is how it works: if you have a $500 “dollar deductible,” that $500 would be deducted from your claim. So, if your insurance company has determined that you have an insured loss worth $10,000 you would receive a claims check for $9,500.

Percentage deductibles are calculated differently. They are based on a percentage of the home’s insured value. So if your house is insured for $100,000 and your insurance policy has a 2 percent deductible, $2,000 would be deducted from the amount you are reimbursed on a claim. In the event of the $10,000 insurance loss, you would be paid $8,000.

Deductibles in many parts of the country have been going up. In hurricane prone states, where there is a greater risk of a major catastrophe, special deductibles may apply for homeowners insurance claims when the cause of damage is attributable to a hurricane. These deductibles are generally higher and may take the form of a percentage of the policy limits.

Deductibles for property damage work differently than, for example, a typical health insurance policy where there a single annual deductible for the policy. With an auto or homeowners insurance policy, the deductible applies each time you file a claim. The one major exception to this is in Florida, where hurricane deductibles specifically are applied per season rather than for each storm.

Whether or not you have your insurance with Menath Insurance, we would be happy to review your policy, see what different deductible options would provide, to make sure you are getting the best value for your cost.

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