Deductibles refer to the amount of money which a person is responsible to pay towards an insured loss. This loss could be as a result of a number of reasons, such as if the person has been in a car accident, or when disaster strikes their home or car. Deductibles have been an essential part of the insurance contact since the past many years. It is important to understand the role deductibles play when insuring a car or home in order to get the most out of your insurance policy. It is also important to understand how your insurance deductibles work in order to prevent surprise costs and to save money. In case disaster strikes, or in case of an accident, the amount of the deductible is deducted or subtracted from your claim payment.
The purpose of deductibles
Deductibles are intended to provide a way by which the risk can be shared between the individual or the policyholder and their insurer. The larger the deductible amount, the less you will pay as premiums for an insurance policy.
The deductible could either be a percentage of the total amount of insurance on a policy, or it could be a specific dollar amount. In most cases, the deductible amount is established by the terms of the insurance coverage and can be found on the declarations of auto insurance policies or policies for homeowners. The way deductibles are incorporated into a policy and how they are implemented are strictly dictated by State insurance regulations, and these laws and regulations vary from state to state.
The different types of deductibles and how do they work?
In case of dollar amount deductibles, a specific amount would come off the top of your claim payment. For example, if you have an insured loss worth $10,000 and your policy states a $500 deductible, you would receive a claims check for $9,500.
In case of percentage deductibles that generally apply to homeowner policies, the deductibles are calculated based on a percentage of the home’s insured value. For example, if your house is insured for $200,000 and your insurance policy has a 2% deductible, then $4,000 would be deducted from any claim payment. Similarly, in the event of a $20,000 insurance loss, you would be paid $16,000 and so on.
Another thing to note is that the deductible applies each time you file a claim for auto insurance or a homeowners policy. The only exception to this rule is the state of Florida where hurricane and disaster deductibles are applied per season rather than for each storm.
Generally, deductibles apply to property damage, and not to the liability portion of homeowners or auto insurance policies. Using the example of a homeowners policy, a deductible would apply to property that has been damaged in an outdoor grill fire, but there would be no deductible if a burned guest made a medical claim as a result of the outdoor fire.
How to save money with insurance deductibles?
If you want to save money on your homeowners or auto insurance policy, you can raise the deductible. Ask about the options for deductibles when comparing policies when shopping for insurance. For example, if you increase the dollar deductible to $500 from $200 on your auto insurance, you can reduce comprehensive coverage premium and collision costs. Going to a higher deductible may even save you more money. The only thing to keep in mind is that in case of any loss, you will be responsible for the deductible. So whatever amount you choose, make sure you are comfortable with it.
Disaster deductibles for homeowners
Most standard homeowners insurances cover disasters like wind, hail and hurricanes. However, flood and earthquake policies have to be purchases separately by homeowners and each of these disasters have their own deductible rules. If you live in an area that is at a high risk for any natural disaster, you need to understand how much deductible you will need to pay if a catastrophe strikes. In order to understand how your particular deductibles work, you need to check your policies and speak to your insurance provider.
Hurricane deductibles – If you live in a hurricane prone state, special deductibles may apply for homeowners insurance claims if the caused damage is attributed to a hurricane. The specific ‘trigger’ selected by the insurance company is the deciding factor behind whether a hurricane deductible applies to a claim or not. These triggers usually vary by state and insurer and apply when the NWS (National Weather Service) officially names a tropical storm, defines the hurricane’s intensity in terms of wind speed, or declares a hurricane watch or warning.
Wind and hail deductibles – These deductibles work in a similar way to hurricane deductibles and are most common in places that experience severe windstorms and hail. The states that fall under this include Ohio and other Midwestern states as well as Tornado Alley which goes through areas of Texas, Oklahoma, Kansas, South Dakota, Iowa, Illinois, Missouri, Nebraska, Colorado, North Dakota, and Minnesota. Wind and hail deductibles are commonly paid in percentages which typically range from 0 to 5 percent.
Flood insurance – A range of deductibles are offered under flood insurance. If you are considering buying flood insurance, it is important that you understand the deductible. In case of flood insurance, deductibles are available in dollar amounts or percentages and vary by state and insurance company. You also have the option to choose separate deductibles for the structure of your home and for the contents of your home.
Earthquake insurance – Percentage deductibles are available for earthquake insurance which range between 2 to 20 percent of the replacement value of the home. The percentage range may vary, depending on your location. The minimum deductibles are set around 10 percent by insurers in states that are at an increased risk of earthquakes, including Utah, Nevada and Washington. The basic policy in California includes a deductible that is 15 percent of the replacement cost of the main home structure. Additional coverages for outer buildings, like a garage, start at 10 percent.
Disaster relief attorneys can provide you with legal assistance that you may need. If you have been impacted by a disaster, get in touch with a relief attorney soon.
Maran & Maran PC is a personal injury & medical malpractice law firm in New Jersey representing clients in accidents & wrongful death cases.