Deductibles – what are they, how do they work, and how do I pick the right one?

What is a deductible?

A deductible is the amount of your own money you are willing to pay toward any claims you file.  A deductible is “first dollar” coverage, which means you would pay your deductible first before the insurance company contributed any dollars to your claim.  Deductibles can range from $250 to $10,000.   

How does a deductible work?

Think of a deductible as a partnership between you and the insurance company.  Let’s assume you carry a $1,000 deductible on your homeowner’s policy.  If you have a fire loss that totals $25,000 in damage, you would pay the first $1,000 and the insurance company would pay the remaining $24,000. 

How do I pick the right deductible?

Let’s start off by clarifying that there is no “right” deductible for everyone.  When deciding on the best deductible for you, you should consider the following:

• Typically, the higher the deductible, the lower the premium, and vice versa
• Filing a claim will almost always have an adverse effect on your premiums.  A larger deductible will help prevent you from making small claims that don’t make economic sense to file
• You will want a deductible you can comfortably afford to pay and that makes sense for your financial situation

Your agent should be able to run a few different scenarios for you to demonstrate the savings potential between various deductible options.