Insurance Deductible | What Companies DO Want You To Know!
What is an Insurance Deductible?
In an insurance policy, the deductible is the amount of expenses that must be paid out of pocket before an insurer will pay any expenses. In general usage, the term deductible may be used to describe one of several types of clauses that are used by insurance companies as a threshold for policy payments.
You have filed a homeowners claim in the amount of $20,000. You have a $1,000 deductible. You will receive $19,000 for the claim. The insurance company may elect too have you pay $1,000 up front or just give you $1,000 less.
The ratio between insurance deductible and premium is very important when it it comes to saving money. Take a look at this chart that shows the relationship between a higher deductible and what that does to the premium amount. This is based off a home replacement cost of $300,000.
It is obvious to conclude that if you have a higher deductible your premium will be much lower. Commonly insurance companies have many options for deductible amount so you can find a common ground between a manageable insurance deductible and premium.
It is OK to select a higher deductible for home insurance because claim frequency happens much less. The Insurance Information Institute has complied claim frequency statistics to give you an idea of how often claims take place on home insurance policies.
Homeowners Insurance Claims Frequency*
• Homeowners claims related to wind or hail are the most frequent; the costliest are related to fire and lightning.
• About one in 15 insured homes has a claim each year.
• About one in 30 insured homes has a property damage claim related to wind or hail each year.
• About one in 55 insured homes has a property damage claim caused by water damage or freezing each year.
• About one in 215 insured homes has a property damage claim due to theft each year
• About one in 265 insured homes has a property damage claim related to fire and lightning.
• About one in 1,000 homeowners policies has a liability claim related to the cost of lawsuits for bodily injury or property damage that the policyholder or family members cause to others.
*Insurance Information Institute calculations, based on ISO®, a Verisk Analytics® business, data for homeowners insurance claims from 2010-2014 (see table above).
To sum up, the insurance deductible is a great way to save. I recommend taking the highest deductible you feel comfortable with while keeping your premium low. Insurance companies certainly prefer you to take a higher deductible because you will be less apt to make a claim!