Have you ever wondered how deductibles work when it comes to homeowners and auto insurance? Many people do – this is why we’ve put together this guide to help you understand the basics of deductibles and how to choose the best one for you and your situation.
1. What exactly is an insurance deductible?
A deductible is the portion of the costs that you pay in a claim when you need to get your car repaired after an accident or your home repaired after a loss. The deductible amount will be paid by you specific to your property that’s damaged, whether it’s your car or your home, so you should always choose a deductible that you’ll be comfortable paying.
2. How does my deductible work?
The way deductibles work varies, based on whether you’re talking about auto policies or home policies.
If you’re involved in a car accident and your vehicle can be repaired, your insurance company will pay the auto body shop for the damages, minus your deductible. You’ll then pay the auto body shop your deductible amount, when your vehicle is completely repaired.
If you’re involved in an accident where your vehicle is totaled — that is, your insurer believes that the cost to repair your vehicle would be more than the value of the vehicle itself — your insurance provider will pay you the current value of your vehicle, minus your deductible.
For example, say you’re involved in a car accident and the damages are estimated to be $2,000 and you carry a $500 deductible. Your insurance company will pay the body shop $1,500, that it, the total damages minus your deductible, to repair your car. Once it’s fully repaired, you’ll then pay the body shop the $500 deductible to pick up your car.
Your insurance company will pay you directly for the damages of your loss, minus your deductible, which you will then use to pay a contractor to repair your home. For example, say that you have experienced a kitchen fire, resulting in a $50,000 loss and you carry a $1,000 deductible. Your insurance company will pay you $49,000, the total damages minus your deductible. When the $50,000 in damages are repaired, you’ll pay for them using the $49,000 from the insurance company plus $1,000 of your own funds, which represents the deductible amount.
3. What options do I have when it comes to my deductible and filing a claim?
You have the right to choose whether or not to file an insurance claim if you have a loss. Typically, people will file claims on larger losses and repair smaller losses on their own.
For example, say that you’re involved in an accident and the damage to your vehicle is $15,000 and you carry a $500 deductible. You would probably file a claim with your insurance provider to repair these damages; if so, you would pay the $500 deductible once it’s repaired.
Now imagine that the damages to your vehicle were only $200 and you have that same $500 deductible. In most cases, a person would choose to pay the $200 out of pocket to repair their car, rather than filing a claim with their insurer.
4. How does my deductible affect my premium?
Insurance policies have a wide range of deductibles you can choose from, based on the policy and coverage. In general, the higher your deductible, the lower your premium, and vice versa.
If you have a higher deductible, such as $500 or $1,000, your insurance company pays less to repair the damage, so the premium they charge you is lower. On the other hand, say you have a lower deductible, such as $100 or $300. You will pay less out of pocket and your insurance company will pay more, which causes you to have a higher premium.
5. How can I choose the best deductible level for me?
Some people may think it’s best to choose a higher deductible in order to pay a lower premium, yet you should consider what you’re comfortable paying if there were to be a loss. A $1,000 deductible will lower your premium, but you have to make sure you can afford to pay the $1,000 out of pocket when there is a loss. This is why your insurance provider will have a selection of deductibles that you can pick from, based on what you are able to pay if you were to file a claim.
6. Can different deductibles apply to different coverages?
Deductibles can vary, based on policy type and on coverages — even within the same policy.
When it comes to auto insurance, you have a deductible for comprehensive coverage and for collision coverage. These two deductibles do not have to be the same. Whether they are the same or different, when you have a comprehensive loss — for example, fire, theft, or vandalism — or a collision loss, your insurance provider will pay for the damages, minus your deductible, and you’ll pay the deductible when your car is repaired.
When it comes to homeowner’s insurance, you have a base deductible for damages to your dwelling or personal property. You may also carry different deductibles for specific coverages such as wind, hail, or earthquake damage, depending on where you live.
7. Does my insurer offer any benefits or discounts specific to my deductible?
Insurance providers may provide various benefits when it comes to your deductible, based on your driving history, claims history, or if you’re not at fault.
Your deductible may go down for safe driving. Some insurance providers will reduce your deductible each year you’re accident free. This may apply to your home insurance deductible as well, if you haven’t had any claims.
You may be eligible for a lower deductible. When you have a loss, some insurance providers may reduce your deductible if you use one of their recommended repair shops.
Your deductible may be waived. If you’re involved in an accident that isn’t your fault, your deductible may be waived, meaning that you won’t have to pay when you pick your vehicle up after it’s repaired.
Your insurer may apply one deductible across multiple policies. If you have a loss to more than one of your vehicles, or to both your auto and home, at the same time, some insurers may only require you to pay one deductible for the entire claim.
Choosing an insurance policy — and the right deductible level — isn’t easy. However, having the knowledge to make an informed decision can help make sure you select the deductible that’s right for your life, your situation, and your individual insurance policy.
Disclaimer: This material is for informational use only. The coverage details described above are specific to The Hartford. Visit thehartford.com to learn more. Other carriers’ offerings may vary. Speak with your agent or insurer for more details on your specific policy.