Do you understand everything about insurance deductibles?

When it comes to the area of insurance, one axiom that is particularly applicable is “knowledge is power.” Indeed, those individuals who know not just the terms of their individual policies, but also the meaning of such key terms as assessment, premium, claim and even deductible are in an inherently better position when interacting with their insurance company.

In recognition of this reality, today’s post, the first in a series, will examine the meaning of the term “deductible,” which has a greater legal significance than most people might imagine.

What exactly is a deductible?

A deductible is more than just the amount of money that a person must pay if they file a claim under their homeowners insurance or their car insurance. It actually represents an allocation of risk between you, the policyholder, and the insurance company. In other words, it’s your share of the loss endured deducted from the value of the claim submitted.

How are deductibles paid?

Deductibles are not always paid as a designated dollar amount. Indeed, they can also be paid as a percentage of the total amount of insurance coverage.

By way of example, consider a policyholder whose car insurance has a $500 deductible and who gets into a wreck that causes what the insurer ultimately determines to be $15,000 in damage to the car. Here, the insurer would either first want a $500 payment before issuing a claims check for $15,000, or would simply issue a claims check for $14,500.

Conversely, consider a policyholder whose homeowners’ insurance deductible is 2 percent and whose $100,000 home suffers a $20,000 loss. Here, the insurer would either first want a $2,000 payment before issuing a claims check for $20,000, or would simply issue a claims check for $18,000.        

How often must deductibles paid?

This depends largely upon the type of insurance. Health insurance, for example, has a single annual deductible, meaning the amount only has to be paid one time during the 12-month period. Car insurance and homeowners’ insurance, on the other hand, generally require payment of a deductible for every claim submitted.

It’s worth noting that here in Florida, hurricane-related deductibles, which are typically percentage-based and relatively high, are generally paid per season as opposed to per weather event.

We’ll continue this conversation in our next post. If you have questions or concerns regarding a denied claim or have reason to suspect your insurer is acting in bad faith, consider speaking with an experienced legal professional to learn more about your options.