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How Do Insurance Deductibles Work?

Whether you’re filing a claim on your home insurance, auto insurance or health insurance policy, a deductible is the amount of money you have to pay before your insurance kicks in

One of the first decisions you’ll have to make when shopping for health insurance, auto insurance, or home insurance is to set the amount of your deductible.

Let’s say your car sustained $2,000 worth of damage as the result of a coverable accident and your deductible is $500. You’ll pay $500 toward the repairs and your insurance provider will pay the remaining $1,500. The same concept holds true for health insurance and homeowner’s insurance.

Every year you’ll have to pay your deductible before your insurance company covers any costs. When your insurance provider says you’ve “met your deducible” or “satisfied your deductible” that means you’ve paid your deductible in full and they’ll pick up the rest.

Deductibles as a Percentage

Some home insurance deductibles are calculated as a percentage of the home’s insured value rather than a flat amount. For example, the deductible for windstorm and hurricane coverage may be one to five percent of the insured value of the home. A policy holder who has a house that’s insured for $200,000 and has a one percent windstorm and hurricane deductible will pay a $2,000 deductible before their insurance starts paying.

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How Your Deductible Affects Your Premium

Increasing your deductible can lower your monthly premium, which is the amount you pay to have your insurance coverage. But remember, when you file a claim, you’ll have to pay more out of pocket before your insurance provider starts paying. A benefit of having a lower deductible is you won’t need to spend as much out of pocket when you file a claim, but you’ll likely have a higher monthly premium.

Understanding how deductibles work and choosing a deductible that fits your budget is important to ensuring you have the coverage you need and can afford. If you’re wondering if your insurance deductibles are appropriate, give a licensed agent a call.

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