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When discussing a deductible for legal purposes, it’s assumed that you’re speaking about deductibles and how they pertain to insurance. In general, a deductible is some kind of expense that reduces the amount you owe. For example, you can use a deductible to reduce your taxes.
Regarding insurance, a deductible is an amount a person must pay before the insurance company begins paying out for its claims. It can also refer to an amount the provider deducts from the claim that has to be paid by the person using the insurance. Understanding the role deductibles play when insuring a home or a car is integral to getting the most of your insurance policy. In this article, we’ll show you how deductibles work.
Deductibles Explained
When you’ve been in a car accident or your home is damaged, the amount of the deductible is subtracted from your claim payment. Deductibles are used to share the risk between the policyholder, the insurer, and yourself. The larger the deductible, the less you pay in premiums.
In some instances, the insurer won’t require you to pay the deductible by yourself or at all. For example, when making a no-fault insurance claim for a car accident, you need to know how to prove you’re not at fault to ensure the at-fault driver pays you deductible.
Each US state uses a different language to determine what is and isn’t a deductible. However, you’ll likely come across deductibles for destructive weather and no-fault car accidents.
General Calculations for Deductibles
A deductible can be a percentage of the total insurance policy or a strict dollar amount. The amount is established by the terms of your coverage and is locked in after you sign the contract.
Percentage Calculations
Percentage deductibles are used explicitly for homeowners policies and use the home’s total value to calculate what you’d owe as a deductible. For example, if your home is worth $200,000 and your policy has a 3% deductible, $4,000 would be subtracted from your claim payments.
Unfortunately, that means if your damage exceeds $4,000, you’re responsible for the rest. Therefore, if your home incurred $20,000 of damage, you have to pay your provider $16,000.
Dollar Calculations
Dollar deductibles are more straightforward. They’re offered by both home and car insurance companies, and it ensures you for the total dollar amount stated in your policy.
For instance, if you have a $1,000 deductible for your policy, and the insurer states your property incurred $15,000 worth of damages, you’d receive a claims check for $14,000.
Raise Your Deductible to Save Money
When comparing insurance policies, focus on offers with the highest deductible you can afford.
Remember: You’ll be responsible for your deductible in the event of a loss.
Increasing your auto insurance deductible from $300 to $600 will reduce your comprehensive coverage premiums and collision costs, which is handy during a settlement.
Always get more than the minimum amount for home insurance and try to avoid percentage deductibles. It’s easier to raise your dollar deductible than it is to raise the value of your home.
Deductible Applications
With homeowners policies or auto insurance, deductibles are applied every time you make a claim with the expectation of Florida. Since hurricanes happen so frequently in that state, Florida only applies hurricane deductibles once per season, not after every storm.
Deductibles rarely apply to the liability portion of your policies but will always pertain to property damage. For example, if a guest fell down the stairs and ripped off a handrail, the homeowner’s policy would apply to the rail, but not to the guest’s injuries if they make a medical claim.