We know insurance policies can be confusing, and if you’ve never had to make a claim, it’s easy to become completely lost when reading over your policy. One aspect of insurance that isn’t always clear is the deductible. So, what is a deductible and how does it work?
At its core, a deductible is a price that you have to pay before the insurance company will jump in to cover the rest of the claim.
The amount you have to pay (the deductible) depends on the type of insurance and what you agreed on with your insurance provider. For example, your deductible for your auto insurance and your home insurance will often be different values. As well, you might have different deductibles for different aspects of your car insurance; for instance, your collision coverage might have a different deductible than your comprehensive coverage. And if you agreed on a higher deductible to lower your monthly insurance rates, you will pay more out of pocket up front than your neighbour making the same claim.
You only have to pay your deductible when you file a claim, and while this might lead you to think “out of sight, out of mind,” you want to make sure that you have that amount ready in case something were to happen.
The deductible works like this: there’s an accident, you make a claim, you pay your deductible, and your insurance provider takes care of the rest. Let’s say there’s a fire in your kitchen. Luckily, it is contained to that one area, but you still have $8000 in needed repairs before the kitchen is functional again. You make a claim with your provider. Your home insurance deductible is $1000. You will have to pay your contractor $1000, but your provider will cover the other $7000.
Now, let’s say your auto insurance deductible is $500 and you get into a fender bender and the damage is $600. Do you want to make a claim? You’ll be paying more than your insurance provider and your rates will probably go up when your insurance is up for renewal. Many people will pay out of pocket, thus avoiding paperwork and increased rates.
There are cases where you won’t have to pay your deductible. For example, most home insurance providers have a clause that says that if the damage to your home is more than $25 000, you don’t have to pay the deductible.
While paying a deductible is not fun, deductibles actually serve a purpose. They help to prevent fraudulent claims and reckless behaviour, and they also help to keep insurance costs low. If insurance providers had to process every small claim, they would need a lot more employees to deal with all the paperwork. The deductible prevents people from making small claims which keeps insurance companies from having an excessive labour cost. Also, by sharing the costs of a claim, it helps insurance providers save more money, a savings which they can then pass on to you.
If you have any concerns or questions about your insurance deductible, do not hesitate to get in contact with your insurance broker. We would be happy to go through the details with you to ease your mind.