What is a Deductible: The Basics and Examples

In the simplest terms, an insurance deductible is the amount of money you will pay before the insurance kicks in and the company pays you out. Once you pay the amount, the company will pay the rest of the claim up to the limit of the policy, whatever that limit may be.

Deductibles can get complicated but for the purposes of establishing a basic understanding, this will stay as simple as possible.

Look at insurance like a compromise. In a compromise, both sides are working together to come to an agreement and this usually means both sides invest something to reach an agreement. In this case, your deductible is your end of the compromise. You promise to pay a certain amount before the company agrees to their end of the compromise which is paying everything else. In most claims, you are coming out way on top. Let’s say you have a $500 deductible. This means you are paying $500 out of pocket and then the insurance company will cover the rest. If you’re looking at a $5,000 claim, that $500 claim will look like an absolute bargain. How much you are charged for that policy (the premium) will also depend on how much you are willing to pay.

Where is my Deductible?

Deductibles can be found on the declaration page of your insurance policy. In some cases, there may be multipole deductibles for different circumstances. Contact your insurance agent if you need to know how much your deductible is and where you can find it.

Deductible Examples

Let’s say you have insured your home against earthquakes. Earthquake policies are separate from your regular homeowners insurance policy. This means there is a deductible for your home and one for your home when it is damaged by an earthquake. Many insurance add-ons are considered separate from your traditional policies and usually carry different (and higher) deductible amounts.

Another example is a “rider.” Riders are add-ons to policies that may not have a deductible even though they insure something. A common example is a high value item rider. If something were to happen to a high value item you own (like a ring) you would be reimbursed because you paid the premium with no other payment needed.

Deductibles and Premiums

Your premium will be priced according to your deductibleLower deductibles result in higher monthly premiums. If you want be covered for a claim, you will need to be sure you can pay the premium every month and the deductible when the claim arises. This is how people use deductibles to save money. Every year you do not make a claim and decide to bump up your deductible, your monthly premium can go down. In many cases, insurance companies have minimum deductible amounts and taking amounts over the minimum will help save money on your monthly premiums. Think of it like a sliding scale where when you slide your deductible up, your premium goes down and vice-versa.

This is a basic explanation of deductible and does not touch topics such as disappearing deductibles, major claim deductibles, and liability claims. For more information, contact your insurance agent.

If you are looking for an insurance agent that can save you money and keep your deductible low, contact Amherst Insurance Agency for all of your insurance needs.  We insure Amherst and all of New York and can offer you auto, home, business, life, and health insurance! If you live in New York and are looking to change up your current plan, contact us to find out how we can help you with all your insurance needs!

By Jeremy Jensen