Your Insurance Deductibles in 2021 : Everything You Should Know


If you ever purchased insurance then you must have heard about deductibles. Although most people know about deductibles in insurance, there are only a few people who have complete knowledge about deductibles. If you are looking for detailed information about the deductibles and how they work then stick till the end of this article.

Before diving into the article further one must know what are deductibles.

What are deductibles?

A deductible is the most important feature in insurance coverage. Yes! It is important in different types of insurances. It is the amount that is paid by you from your pocket before receiving your insurance coverage. Once you pay the deductible the insurance company will pay the remaining amount of your claims as per your policy. Simply put, it is one of the several types of clauses that are placed by the insurance companies as the threshold for policy payments. Also, a policy can have multiple deductibles too. 

Wondering why do insurance companies have deductibles in insurance claims? Well, the answer is simple, having deductibles in the policy will prevent people from hospitalizing for needless treatment as they have insurance coverage or making claims for trivial matters. Having deductibles will help the insurance companies protect themselves against people making insurance claims irresponsibly. 

You must be wondering then, how do deductibles work? Let’s discuss it in the next section.

Deductibles for different types of insurances

As you already know, the deductibles will vary based on the insurance types. In this section, you will be learning about different insurance deductibles. 

Home insurance

Based on the deductibles you choose, the risk will come from the homeowner’s insurance. They can be based on either dollar amount or percentage. Deductibles for the homeowner insurance policy will range anywhere between $500 – $2000. You must know that a higher deductible will lower your premium but you will be required to pay a lot in case of a claim. The minimum deductibles that are required to be paid by you are $500 or 2%. 

Percentage deductible is mostly required in case of natural disasters. If the policy amount is high even a small percentage can turn out to be a huge amount. So before choosing your deductible, check whether it fits into your budget or not. While you purchase homeowner’s insurance, based on the area you are living you may also be required to purchase insurance for natural disasters. Before making your choice, check out the FMD website for additional information about deductibles. 

Auto insurance

Not all parts of auto insurance carry a deductible. If you take liability car insurance as an example, under this policy the insurance company will pay for all the damages you have caused for someone’s car without any deductibles. However, damages to your own vehicle will not be covered under this policy. While purchasing a policy you can check for the amount of deductible you will be incurring. In case your policy has deductibles, the insurance company will pay for the damages minus your deductibles. For auto insurance, you must pay deductibles every time you make a claim. The deductible can be anywhere between $0-$2500.

Let’s make it more clear with an example,

You have taken a policy that will protect your vehicle against damages in case of an accident. The deductible amount of the policy is $500. If a car accident has occurred and the total repairs have amounted to $3000 then the insurance company will pay $2500 and you will be paying $500 out of your pockets. 

However, if your car is totaled after the accident and the company assumes that the total cost of repairs is higher than the cost of the vehicle then they will pay you the current value of your vehicle deducting the deductible. 

Health insurance

In the case of health insurance, before the insurance coverage kicks of you must pay your deductible. Yes! The insurer will start paying after you pay your deductible for the covered services. For example, your deductible is $3000. The insurer will be paying after you pay $3000 for the covered services. The health insurance carries an annual deductible. If you have taken health insurance for an individual then the expenses are covered for that individual only and the deductibles are mostly small too. In case of insurance for a complete family, they will have a family deductible. All the members of the family will be covered whether they have reached their deductibles or not. 

How do insurance deductibles work?

Purchasing insurance means you will be protected against any unexpected damages or risks and prevents your funds in your bank account from sinking. As you already know insurance deductibles come out of your pocket when a claim is filed. Deductibles are an agreement that you make with the insurance companies. It is the amount you are willing to pay for the risk that you are getting covered. The deductibles are two types- dollar amount or percentage. In dollar amount deductible you will have a specific amount of deductible mentioned in your policy. However, in the case of percentage deductible, a specific percentage will be decided. The amount you will be required to pay will be determined based on your percentage.  

While purchasing an insurance policy, you should keep one thing in mind that the policies with high deductibles are the best. High deductibles mean that you will be required to pay a low premium for your policy as they reduce the risk for the insurance company. However, there are also minimum deductibles. In the case of a minimum deductible, you will have to shoulder a portion of the insurance claim. Although you can increase your deductible, you cannot make it lower than the company set amount. The choice of insurance deductible is up to you. Also, different policies have different deductibles. 

Wrapping up

As you have made it to the end of the article, you must have understood deductibles and how they work. While buying a policy make sure that you check the deductibles and read them clearly. In case you are not clear about anything, make sure that you ask your agent about complete details. The insurance company will offer you different ranges of deductibles. So choose a deductible that just matches your needs. Although, the deductibles for home and auto insurance range from $500 to$1000, they may vary based on the policy and the insurance provider. If you are planning to take an insurance policy, then make sure that the deductibles and the policy premium both are within your budget.