Understanding insurance deductibles can save you money and frustration if you need to make a claim. When it comes to auto, home, and health insurance, a deductible is the amount you are required to pay out of pocket before the insurance company will help pay for a covered loss. While some plans have annual deductibles, others have deductibles per claim or each individual covered.
The Basics of Auto, Health, and Home Insurance Deductibles
Most auto insurance deductibles are pretty straightforward. With auto insurance, there is no annual deductible but rather an amount you must pay with most claims, no matter how many you have per year or the lifetime of your policy. Your insurer only pays for damages above your deductible, which can only be applied to damages to your car (not someone else’s).
With a higher deductible plan, your monthly car insurance payment is lower and your out of pocket costs are higher. While paying less per month may sound ideal, choosing a higher deductible plan can be risky if you aren’t financially prepared to manage the costs should you need to file a claim. A lower deductible plan carries a higher monthly payment and lower out of pocket costs.
Auto insurance typically includes a deductible for both comprehensive and collision coverage. A comprehensive deductible applies when your car is damaged by other causes—e.g., hitting an animal, damage caused by extreme weather, etc. A collision deductible is applied to a claim should you get into an accident with another driver.
Health insurance plans carry annual deductibles that must be paid before your insurance provider will cover care. Once the deductible is met, you are typically only responsible for co-pays or “coinsurance” rates—unless your insurance also carries an “out-of-pocket maximum.” The out-of-pocket maximum amount is stated in your policy, and sets the maximum amount you are responsible for before your provider will cover 100% of costs. Coinsurance is the percentage of costs you are to pay once your deductible has been met.
As with auto insurance, high deductible health insurance plans can offer cheaper monthly payments but may not save you much if you frequently visit the doctor. It’s also important to note that health insurance plans usually include different deductibles, including an individual or family deductible; an in-network and out-of-network deductible; and a prescription drug deductible.
When selecting a homeowner’s insurance policy, look to balance the short-term costs you can afford (your deductible) with the long-term costs of the policy (premium). If you are a financially responsible homeowner with a secure budget, low-risk home and lifestyle, a higher deductible may be right for you. If your home is destroyed by a weather event, fire or major theft, however, a high out-of-pocket cost may be overwhelming, so selecting a lower deductible plan might be a better choice.
While wind, hail and hurricanes are covered by some standard homeowners insurance policies, flood and earthquake policies usually must be purchased separately. Each disaster could have its own deductible rates and guidelines. In addition, some personal liability or medical payment claims can fall under home insurance (e.g., if a house cleaner falls in your house and sues you to pay her bills). Talk with your insurer and read your policy thoroughly to be clear on what is and is not covered by the deductible.
Understanding the details of your auto, health and home insurance policies and the deductibles that fall within each plan ensures you and your family are protected should the unexpected arise. When it comes to your mode of transportation, your health and your home, making smart choices today can reduce your risk for financial turmoil tomorrow.
Contact your Cole Harrison agent to ensure you are getting the most out of your insurance policies.