Do You Know Your Deductible?

You’ve heard a lot about deductibles. You know you have to pay this amount of money before your insurance company steps in to cover the rest of your loss. Yet, you may not really know your deductible. That is, you may not really have a clue about how much you’ll pay or if you have a flat deductible or a percentage deductible.

When buying any form of insurance, make deductible details a focus of your comparison process. It can help you understand what’s really to be expected when you have to file a claim.

What Is a Fixed Deductible?

What most people think of as an insurance deductible is what a fixed deductible is. It’s a flat rate – a specific dollar amount – that you are responsible for. Most home insurance policies will use this method. For example, your policy may have a $1,000 deductible. If you file a claim for $3,000 worth of damage, you pay $1,000, and your insurer pays $2,000. It’s the most straightforward method.

What About a Percentage Deductible?

You’ll need to do a bit of math to figure out the percentage deductible on your policy. It’s actually still rather simple. Some policies don’t place a specific dollar amount on the claim. Rather, they require you to pay a percentage of your policy’s coverage. That’s much different than what a fixed deductible costs.

For example, if your policy has a 1 percent deductible, that means you pay just one percent of the amount of coverage you have. Let’s say your policy provides $200,000 worth of coverage for your home. You file a claim after a fire caused $3,000 worth of damage and you have a 1 percent deductible. That means you are responsible for the first $2,000 of the claim. That’s because one percent of $200,000 is $2,000.

Which One Is Right for You?

That’s one area you will want to negotiate with your insurance company. Look at the cost of each type of policy. If you have the extra cash in savings, a higher deductible can lower your premium costs for coverage. However, it has to be affordable to you to be worth the investment. Compare several policies to find one that makes coverage for your needs easy to manage.