In every country in this world, there is insurance, and in every insurance policy, there are common terms that everybody needs to know about. One of the terms we’ll be looking at today is insurance deductible. So many people really do not understand what insurance deductibles are, which is why today we are going to take a look at what an insurance deductible is.
Most of the time, many people do not consider insurance deductibles before filing a claim, which is why it is very important to know what they mean. It is only when you know what an insurance deductible is that you will know what kind of insurance policy to get and when to file a claim or not.
As a result of this, today’s article will focus on deductibles so that you know everything you need to know about them.
What is Insurance Deductible?
Insurance deductibles are usually very common when you have health, home, or auto insurance. If you have this type of insurance and you have tried to file a claim before, you must have known about deductibles, even if you do not understand them.
The insurance deductible has to do with people who file a claim, and it is the amount of money you must pay before you the claim you filed is paid.
Deductibles are simply a way for you and your insurance company to share the cost of paying a claim. In other words, it is the money that you will pay out of your pocket if you want your insurance to pay the claim that you have filed.
What this also means is that if you do not pay your insurance deductible, your insurance company will not pay out the claim you have filed.
How Does Insurance Deductible Work?
Keep in mind that the deductible is part of the insurance claim payments that the company will pay you. However, as a result of the policy of insurance you have, the deductible will be removed from the claim payment. meaning that instead of the insurance company paying you the entire claim you filed, you will only receive the claim minus your deductible.
For example, if you file an insurance claim for 10,000 dollars after an auto accident and your deductible is $500, the insurance company will pay you $9500. The reason for this amount is that your deductible is $500, and the insurance company has subtracted it from the total claim you filed and paid you the balance.
The value of your deductible will vary greatly depending on the type of insurance that you have. That is not all, because the amount of premium you pay also influences this value. The higher the value of the premium you pay, the lower the deductible of your policy. Note that with auto and home insurance, you are mandated to pay it anytime you file a claim.
Why Insurance Policies Have Deductibles
Insurance companies are in the business of making money, so you cannot expect them not to look out for their own interests. One of the ways they look out for themselves is by making the deductible part of their policy. Because it allows the insurance company to share the cost with the policyholder and avoid paying the cost alone.
Another reason is to mitigate the risk of moral hazard for the policyholder. A moral hazard is when a person acts in bad faith because the person wants to get the insurance money by filing a claim, so the person might deliberately get into an accident or cause damage to themselves or their property. As a result of the deductible, the person will think twice about doing it.
The final reason why insurance companies have deductibles is to simply allow them to have financial stability. If there were no deductibles, there would be so many insurance claims that the financial structure of an insurance company would be destabilized.
As a result of this, the cost is not only for the company to cover but also for the policyholder. So there is no overwhelming number of claims to affect the company financially.
Types of Insurance Deductible
There are about four types of insurance deductibles that you can pay when you have any of these types of insurance. I am going to list them and explain them to you so that you can have a better understanding of how they work.
Health Insurance Deductibles
Just as the name suggests, your health insurance deductible is the amount of money you will pay before your health insurance will kick in. This means that you will have to pay up to the amount of your deductible if it is $500 before your health insurance will start paying for the rest.
If your deductible is up to $2,000, you must pay up to $2000 before your health insurance kicks in to cover the rest.
Homeowners Insurance Deductibles
The same is true for home insurance deductibles: if you have damage to your home and have a deductible of $2000, but the damage is approximately $25000, the insurance company will only pay you $23000 after you file a claim. This is because you and the insurance company are the ones responsible for sharing the cost.
Auto Insurance Deductibles
If you have purchased auto insurance before, then you have definitely used a deductible for your policy. This is the amount that you have to pay yourself before your auto insurance kicks in. If you do not make payment for this, then your insurance company will deduct the deductible from the amount that you are reimbursed.
This is why you should not bother filing a claim if your deductible is more than the damage.
Pet Insurance Deductibles
Many people make the mistake of focusing solely on premiums and ignoring deductibles; however, that is one place where you can share costs with the insurance company. which is why it is very important for you to take the cost of deductibles into consideration when purchasing pet insurance.
How Does Deductible Save you Money?
Everyone in the insurance industry understands that one of the reasons so many people fail to renew their insurance policy is failure to pay premiums. Many people are not able to keep up with the cost of paying after getting an insurance policy, and they find out that their policy has been stopped by the insurance company. However, you can make use of it to your advantage.
If you are tired of paying high premiums on insurance, you can simply choose a policy that has a high deductible. This is because the higher the deductible you have on your policy, the lower the premium you pay. And also, the lower the deductible that you are paying, the higher the premium that you will pay.
This means lowering your premium by paying a high deductible will help you save more money.
What does it mean to have $1000 deductible?
When you have a $1,000 deductible, it means that when you file a claim and it is paid out, $1000 will be deducted from the entire amount of the claim settlement you receive. This is usually determined when purchasing an insurance policy; it is the responsibility of the policyholder to select a policy that will determine the type of deductible we have.
Is it better to have a deductible or no deductible?
A plan with no deductible at all is a good plan and a wise move for people who require expensive medical care. I need insurance to take care of it. However, it is not a good move if you do not want to pay high insurance premiums. Because, as I have said several times in this article, the higher your deductible, the lower the premium you have to pay for your insurance policy.