Deductibles have been an essential part of the insurance contract for many years. Understanding the role deductibles play when insuring a vehicle or home is integral to getting the most out of your insurance policy.
A deductible is the amount of money that you are responsible for paying toward an insured loss. When a disaster strikes your home or you have a car accident, the deductible is subtracted, or "deducted," from what your insurance pays toward a claim. Deductibles are how risk is shared between you, the policyholder, and your insurer.
Generally speaking, the larger the deductible, the less you pay in premiums for an insurance policy. A deductible can be either a specific dollar amount or a percentage of the total amount of insurance on a policy. The amount is established by the terms of your coverage and can be found on the declarations (or front) page of standard homeowners, condo owners, renters, and auto insurance policies.
A specific amount would be subtracted from your claim payment if you have a dollar amount deductible. For example, if your policy states a $500 deductible, and your insurer has determined that you have an insured loss worth $10,000, you would receive a claims check for $9,500.
Percentage deductibles generally only apply to homeowners policies and are calculated based on a percentage of the home’s insured value. Therefore, if your house is insured for $100,000 and your insurance policy has a 2 percent deductible, $2,000 would be deducted from any claim payment. In the event of the $10,000 insurance loss, you would be paid $8,000. For a $25,000 loss, your claim check would be $23,000.
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