The term deductible is on just about every insurance policy we pay for. It’s on our auto insurance, our home insurance, our health insurance and our business insurance, however, most of the time we don’t really take notice to what that coverage means until we are involved in some kind of loss.
The Dictionary.com definition of a deductible is pretty simple and very accurate, it reads: “the amount for which the insured is liable on each loss, injury, etc. before an insurance company will make payment.”
Here’s an example: say you’re driving your car in the middle of the day in the summer and suddenly you are caught in a hail storm and receive significant body damage to your vehicle. Your first step is to call your insurance company and file a claim because you definitely want to get your car back to normal. When you take your car to the body shop, they estimate it will cost $5,000 to repair your car. You review your insurance policy and it says you have a $500 deductible, which means, you are responsible for $500 of the $5,000. After that is paid, your insurance company will pay the remaining $4,500 to fix your car.
The concept of deductibles is very straightforward and most of us have had to deal with them in some form or another, however, we often find that customers don’t really realize their deductible is too high for them until they have some kind of loss. Although having higher deductibles can save you money on your insurance premiums, if you can’t pay that amount in the event of a loss, is it actually helpful to you?
A $1,000 deductible might be affordable for some, but not others. Your policy is meant to protect you and provide coverage when you need it, so make the most of that and place your deductibles at a level you are financially comfortable with.
My advice, review your policies individually, and review your policies with your agent. Make sure that the deductible on your home or auto or business insurance is something you can afford if you actually have a loss. Insurance is meant to protect you, not leave you with expensive out of pocket costs.