Understanding deductibles may save money

In a money-tight economy, drivers and homeowners who are knowledgeable about their insurance deductibles get the most out of their insurance dollars. A recent report from the Insurance Information Institute outlines the basics of insurance deductibles, so current and potential auto and homebuyers can make smart choices when it comes to their policies.

A deductible, which is the amount deducted from an insured loss, serves an important role of the insurance contract and represents the share of risk between the insurer and the insured. When repairing or replacing, the amount of the deductible comes out of the owners pocket.

According to the III, the deductible can be either a dollar amount or a percentage of the total amount of insurance on a policy. Generally the larger the amount that is deducted, the less a consumer pays in premiums for the insurance policy.

Recently, deductibles have been increasing, especially in states that are more vulnerable to major catastrophes including hurricanes. Sometimes special deductibles apply for homeowners insurance claims when damage is caused by a hurricane, but these deductibles are generally higher and often take the form of a percentage of policy limits.

Raising your deductible is one of the best ways to save money on homeowners or auto insurance  says the source. The only catch is that if you do have a loss, the larger amount will be deducted from your insurance claim and the person insured is responsible for the difference.

Deductibles also differ by company and state, since insurance is state regulated and insurance companies must abide state laws. III says that in many states, a range of deductibles can be found so when comparing policies you should always ask about deductibles.

There are typically no deductibles for a liability portion of a policy as deductibles apply to property damage. Auto policies offer a deductible for the optional comprehensive or collision coverage but not liability, says III. Additionally, homeowners deductibles apply to damage to the structure of the house or personal possessions but not if a homeowner is sued or a medical claim is made by someone injured on the property.

Aside from understanding the basics of how deductibles work, the source says it is equally important for drivers and homeowners to take into consideration the price of insurance when considering a new purchase.
 

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