The Appropriate Insurance Deductible:
I think the some of the most important things to have in life is patience and self awareness. Patience is a learned behavior. Self Awareness comes with thought. In regards to self awareness, understanding your own risk tolerance is a component as it relates to insurance. I have always had a larger risk tolerance than those who I was acquainted with or family. So for me, the appropriate insurance deductible was always as high a possible.
The IRMI definition of a deductible is, “An amount the insurer will deduct from the loss before paying up to its policy limits. Most property insurance policies contain a per-occurrence deductible provision that stipulates that the deductible amount specified in the policy declarations will be subtracted from each covered loss in determining the amount of the insured’s loss recovery. Usually, the amount of the deductible is not subtracted from policy limits.”
Insurance Jargon is not always easy to understand, so InsuranceShark is trying to help. The deductible is the amount you agree to pay before insurance kicks in, insurance companies use deductibles for many reasons – but individuals and businesses use them to lower their insurance costs and retain part of the risk. Before you sign up for the highest possible deductible, it is important to consider just how much you’d save on your rates and whether you are financially and mentally prepared to take the risk. Depending on your financial means, how much you have in savings and your risk tolerance you might be able to take a higher deductible.
You get in an auto accident and the first $500 of an auto property damage claim or you have damage to your home and you file a claim, the first $1,000 of the claim is the deductible and the insurance company will pay the remaining up to policy limits. Each policy will differ depending on the declarations page on how it is applied.
According to the Insurance Information Institute, there are some other important things to know about deductibles:
- Raising Your Deductible Can Save Money
- One of the best ways to save money on a homeowners or auto insurance policy is to raise the deductible. For example, for auto insurance, increasing the dollar deductible from $200 to $500 can reduce collision and comprehensive coverage premium costs by 15 to 30 percent. Going to a $1,000 deductible can save you 40 percent or more. But, remember that if you have a loss, this amount will be deducted from your insurance claim and that you will be responsible for the difference.
- Deductibles Differ by Company and by State
- Insurance is state regulated. And insurance companies must follow strict state laws. This also applies to the way deductibles are incorporated into the language of a policy, and how they are implemented. In many states a range of deductibles can be found. So if you are shopping for insurance, you should always ask about deductibles when comparing policies. For homeowners or renters insurance policies, most insurers offer a minimum $500 dollar deductible. However, raising the deductible to $1,000 or more can save upwards of 20 percent on the cost of an insurance policy.
- Deductibles Do Not Apply to Liability Claims
- There are generally no deductibles for the liability portion of a homeowners or auto insurance policy. Instead, the deductibles apply to property damage. So, on in an auto policy, there is a deductible for the optional comprehensive or collision coverage, but not for the liability portion. And, in a homeowners policy, deductibles apply to damage to the structure of the house or personal possessions but not if a homeowner is sued or a medical claim is made by someone injured in the home.
These premium numbers are examples and your individual quotes, driving record, and financial situation would have to be used to determine suitability of a deductible, but this example shows how over a 10 year period of auto insurance, not having a deductible could cost someone between $202 and $404. This example assumes 3% interest rate over 10 year period and 10% or 20% likelihood of loss, however, based upon your own driving experience and other factors you maybe more or less likely of having an auto loss.
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