What is a deductible for insurance?
The deductible is part of the money that you’ll pay in order to maintain insurance, but there’s more to it. When you purchase an insurance policy for your home or another asset, it’s a good idea to educate yourself on all the costs involved. Find out when each payment is due, how much you owe, and how often these payments must be made to maintain your coverage. The first money owed for a policy is called the ‘premium.’ It’s a monthly or annual fee that is paid to the insurance company, either directly or through an insurance agent.
Insurance Premium - The price you pay to maintain an insurance policy. Premiums are usually paid annually or on a month-by-month basis. The cost of the premium is based on a consideration of risk factors.
Once the premium has been paid, your coverage is active, unless a short waiting period is included. Then, if you’re like most people, you’ll go about your life and hope that nothing occurs that would require your insurance to pay out.
Weather events and other natural disasters do occur, and they can affect your property. If an event does impact your home and the damage is significant, making a claim on your insurance policy may be the fastest and easiest way to get your life back in order.
Each insurance policy you carry will have another cost that comes into play when a claim is made. The ‘deductible’ is the amount that you will pay towards repairing the damaged asset. The rest of the repairs will be covered by the insurance company, who will issue a payment to complete the work after you’ve contributed your portion. This is called a deductible because this amount is subtracted or ‘deducted’ from the payout you receive from your insurer.
Insurance Deductible - The amount you’ll pay out-of-pocket to meet the requirements of your insurance policy; after this has been paid, your insurance policy will cover the rest.
How is a deductible calculated?
Insurance deductibles may be defined as a flat price or calculated as a percentage of the covered asset’s value. The percentage calculation method is increasingly common for some home insurance deductilbles–especially wind and hail deductibles.
Example: If your home is valued at $350,000 and the wind and hail deductible is calculated at 3% of the home’s value, you would be responsible for contributing $10,500 toward the repairs provided by the policy before the insurance company paid out the remainder of the costs.
Before you purchase any insurance policy, ask questions of your agent or insurance company representative to get complete clarity on any deductible amount that you’ll owe after making a claim on the policy.
Do I have to pay the deductible every time I make a claim?
Most home and auto insurance policies will include a ‘per-occurrence’ deductible, meaning that you’ll pay the required deductible amount for each claim you make on the policy. This type of policy may involve a waiting period after a claim is made before your coverage reactivates and is available for additional claims.
Other types of insurance policies, especially health insurance, may have an annual deductible. With this type of policy, you’d be responsible for your expenses up to the deductible amount, and beyond that the insurance company would cover any further costs. With an annual deductible, once that amount has been paid, you would not owe another deductible payment for the rest of the coverage period.
Is there a deductible for every kind of insurance?
Some types of insurance may not require a deductible when a claim is made. Liability insurance is a category that usually does not. Other categories of insurance that typically use deductibles as a way to offer lower premium costs may also provide a zero-deductible plan for customers who need instant coverage.
What makes some deductibles higher than others?
Deductibles are calculated based on the risk factors surrounding the person or group buying an insurance policy. The location of a home or the likelihood of a hailstorm in the surrounding area could raise or lower a homeowner’s insurance costs. Your health insurance deductible could change with the level of coverage you selected, and there are risk factors around each person’s health that are taken into consideration.
Why are wind and hail deductibles different?
Wind and hail insurance policies have become more of a focal point for homeowners and insurance providers in recent years thanks to the increasing frequency of damaging weather events across the United States–especially in the southern and mid-western regions. The demand for more frequent payouts to cover damage from wind and hail has resulted in higher prices for home insurance deductibles. Wind and hail deductibles also differ in that they are required to exist separately from the primary home insurance policy deductible in some states.
Are all deductibles different?
Several categories of healthcare coverage have seen their deductibles increase in the last two years, some of them driven by changes in the federal government. Flood insurance is another subcategory of home insurance coverage that is often called out as a separate item with its own costs.
Summary - Insurance Deductibles
Deductibles are a significant part of the cost and responsibility that you take on when buying an insurance policy. Making sure you understand any deductibles that you might owe in the case of a claim is critical. Talk with your insurance agent and ask any questions you have up front to reduce stress when it’s time to make a claim on your policy.
Sources:
“Background on: Hurricane and Windstorm Deductibles” Insurance Information Institute, June 23, 2021, https://www.iii.org/article/background-on-hurricane-and-windstorm-deductibles
Henry, Lindsey. “The Importance of Understanding Your Wind/Hail Deductible” M3 Insurance, Oct. 18, 2024, https://m3ins.com/the-importance-of-understanding-your-wind-hail-deductible/
Gray is the Senior Content Specialist at Sola Insurance, working with the Sales and Marketing teams to provide helpful, valuable content for homeowners and agents. Gray has worked previously in finance, logistics, and advertising.
