There’s a whole lot of terminologies used in the insurance industry that you will need to understand. Poor understanding of these terms can make a policyholder lose out on numerous opportunities. Communication is one of the challenges facing the insurance industry.
One of such insurance terminologies is the word, “deductible.” You will need to understand the definition of the insurance deductible, how it works and the cost.
What Is Insurance Deductible?
An insurance deductible is the amount of money that you, the insured, must pay when making an insurance claim before your insurance coverage kicks in and pays the rest.
If you want a perfect explanation of when to add or not to add it, get an independent insurance agent near you to explain it further.
If you have a deductible, it means that you will be responsible for any losses or payment of services up to the stated dollar amount in your insurance policy.
What are the two ways of calculating an insurance deductible? Insurance deductibles can either be defined as a dollar amount or as a percentage. It’s the choice of the insurance company and the policyholder to decide.
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What Are the Benefits of Insurance Deductible?
When most insurance agents try to explain deductibles, they make it look like it’s only the policyholder that benefits from it. But in reality, that’s not true.
Both you, the insured, a.k.a policyholder and the insurance company all benefit from insurance deductibles.
The benefits of deductibles to the insured are as follows:
- It helps to cut down your insurance cost. When you accept liability for a part of the loss as the one insured, it lowers your car insurance premium.
- It’s a smart way for a policyholder to reduce the financial stress on an insurance company.
The benefits of deductibles to the insurer are as follows:
- Deductibles help insurance companies not to pay too much for a claim.
- Deductibles are important because they prevent policyholders from making trivial claims or go for unnecessary treatment and hospitalization just because they have insurance coverage.
The importance of deductibles can’t be overemphasized. It’s beneficial to both the policyholder and the insurance company.
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How an Insurance Deductible Works in the United States
Insurance deductibles can work in different types of insurance coverage. Its application can be seen in health, auto, homeowners, pet and business insurance. You can’t exhaustively discuss how health insurance works without mentioning deductibles.
To help you understand how auto insurance deductible works, let’s look at this example below.
You got involved in a car accident and your property’s damages are assessed at $2000 in damages. If your insurance policy has a $750 deductible (if it was defined as a dollar amount), you will have to pay the first $750 of the damages of your car out of your own pocket and the insurer will pay the remaining $1250. The same method applies if it’s a health insurance deductible.
Generally, once the deductible is paid by the insured, any future losses that you might have during the term of that policy will be covered in full by the insurer,
The Insurance Information Institute has a great article on understanding your insurance deductibles that explain how deductibles work to prevent surprise costs and save money. Do check them out to see more ways it works. You might find insurance deductible examples that might be similar to what you have in mind.
Why Do Companies Add Deductible Plans in their Business Insurance Coverage?
Most companies that add deductible plans to their workers’ compensation insurance program do that to ensure their employees don’t abuse the insurance benefits.
When an employee remembers that he or she is going to pay a deductible before the coverage kicks in, they will reconsider their options.
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Does a deductible affect your premium? Yes. Deductible lowers your insurance premium.