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Understanding the Deductible in Your Insurance Policy

Understanding the Deductible in Your Insurance Policy

The deductible in your insurance policy is often misunderstood. The deductible is the amount of money that you will have to pay out of pocket on each claim. Some policies provide for no deductible and others, such as some State Farm policies, have policies that tie the deductible to the limit of the policy.

I once assisted an insured in a $ 30,000.00 claim that had a deductible of ten percent. The policy limit was $ 280,000.00 so the deductible was $28,000.00 leaving the insured with just $ 2,000.00 to repair the damage to her home. She was surprised that she had that ten percent deductible and frankly, there are many people like her that do not even know what their deductible is. In order for some insurers to remain competitive, they structure their deductibles in order to decrease their claim payouts. That way they can reduce premiums. This is a good reason for insurance consumers to check their policy for the amount of deductible shown, or call their agent right away.

Generally, the higher the deductible the less the premium will be. A policy with a $ 500.00 deductible will cost more than a policy with a $ 1,000.00 deductible but sometimes the price difference is so small that you might just consider the lower deductible.

We must note that the deductible only applies to the damage, not the policy limit. For example let’s use a deductible of $1,000.00 with a $100,000 policy limit and you have a $ 90,000 loss, the amount the insurer will pay you is $89,000.00. But here is the kicker, if your loss is $105,000, and your deductible is $10,000, your insurer should pay you $95,00000 because the deductible is taken from the amount of the loss, not the policy limit. If your loss is $110,000.00, with a $10,000 deductible, the insurer will pay you $100,000.00. Many insureds and some claim representatives do not understand this but at Brown – O’Haver, we do. We will always do our best to collect the amount your insurer owes you for a loss. No more and no less.

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