What is an insurance deductible?

20 May

An insurance deductible is simply the amount that you have to pay any time you make a claim on your policy before your coverage kicks in to cover the rest of the loss.  

Most types of insurance come with a deductible and the deductible amount can range as low as $100 well into the thousands of dollars depending on the type of policy and damage. 

Here is a quick overview of the various types of insurance and some of the standard deductibles that come with them:

Auto Insurance 

When it comes to auto insurance, deductibles usually apply to the collision and comprehensive coverages of the policy. Collision covers damage from a collision with another vehicle or object while comprehensive will repair damage done from events that do not involve a collision. Theft, vandalism, flooding, fire, and animal strikes are all covered by comprehensive.

When you make a claim on your collision or comprehensive coverage you will need to pay the deductible before your insurance steps in to pay the rest of the repair bill.

Typical car insurance deductibles amounts are $250, $500, $1,000 or more. You can choose your deductible when you purchase your policy. It’s important to remember that the higher the deductible, the lower your premium and vice versa. 

If you make a claim on your collision or comprehensive coverage, your insurance check will be reduced by the amount of your deductible. As an example, if a tree branch falls on your vehicle and does $2,500 in damage and you have a $500 deductible, your insurance company will pay $2,000 to the repair shop and you will have to cover the balance of $500 which is your deducible. 

Always choose a deductible that you can easily afford in the event you have to make a claim on your policy. The liability section of a car insurance policy doesn’t have a deductible. 

Homeowners Insurance 

Just like car insurance, homeowners insurance typically comes with a deductible for most coverages. The liability section of a homeowners policy doesn’t include a deductible. 

Homeowners insurance can come with a couple of different deductibles and where you live may dictate the deductible types used in your policy. Here is a quick overview of each:

  • Straight deductible: Many homeowner policies have a straight deductible for all types of damage, except liability issues. This means that you must pay the deductible you selected when purchasing the policy. Typical homeowner deductibles range from $250 to $2,500 or higher.
  • Percentage deductible: In areas where severe weather is common, you may face a percentage deductible for windstorm or hail damage as some insurers have moved to a percentage deductible for certain weather related damage.

A percentage deductible makes your deductible a percentage of your total dwelling coverage. As an example, if you are carrying $300,000 in coverage on your home and have a 3 percent deductible for hail or wind damage, your portion of the deductible would be $9,000 (3 percent of $300,000). 

This can be a significant amount to cover so it is important that you fully understand the deductibles used in your policy. Percentage deductibles can range from 1% to 5% or even higher. 

In most cases, the percentage deductible only applies to wind and hail damage or a specific part of your home such as the roof. If you were dealing with a fire damage claim, your deductible would be a straight deductible. 

Renters Insurance 

Renters insurance also comes with a deductible that must be paid when you make a claim on your policy. Like other forms of insurance, a deductible is not applied for liability claims. In most cases, renter’s insurance is a straight deductible, percentage deductibles are not common with renter’s insurance. 

While it varies by insurer, renter’s insurance deductible amounts are typically: $250, $500, $1,000, or $2,500. 

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