Understanding Your Home & Auto Deductible

So you’ve seen a deductible on your auto or homeowners insurance policy. How does it work exactly? You probably already know that it’s the amount of “cash-on-hand” you need should anything bad happen. What you may not know is that it can be a bit more complicated than that.

Auto Deductible

Simply put the deductible is how much you are responsible for paying for physical damage to your vehicle. Let’s say a tree falls on your car and causes $3,000 worth of damage. If your deductible is set to $1,000, then the insurance company will only pay $2,000 for that loss. The deductible is how much you will pay on your own.

The auto deductible applies to physical damage. It will never kick in for any liability losses. This deductible ranges from $100 up to $5,000. You can also separate these into different amounts for comprehensive and collision. Collision is for when you’re in an accident; this will cover the physical damage. Comprehensive is for really any other physical damage out of your control, such as fire, lightning, hail, stray rocks, etc.

Homeowners Deductible

Your homeowners policy also carries a deductible. There are two separate ones that apply here as well. You may have seen both of them the same, but they may not always be so. The deductible for all-peril and wind/hail damage losses remain separate. It can get more complicated with a third deductible that applies to catastrophic storms, but we will keep it relatively simple and only talk about the first two for now.

An all-peril loss is any loss listed on your policy that is covered. This covers things like fire, lightning, falling objects, theft, etc. Typically your all-peril deductible will be a percentage, but it may also be set as a flat amount. The percentage deductible is based on the overall, dwelling replacement cost, coverage amount. So in this case, if you want a percentage deductible, maybe consider how much your overall coverage is. The higher your dwelling coverage, the higher your percentage deductible will be.

On the other side, the wind/hail deductible is for exactly what it describes: wind and hailstorms. This would be any damage, typically to your roof, resulting in wind damage or hail damage. It is very rare to see this deductible a flat amount; it is standard across the board for this deductible to be a percentage.

Effect on Your Premium

Your deductibles, whichever you choose, will have the greatest visible impact on your premium. The higher your deductible, the cheaper your policy will be. This is due to the simple fact that you would be paying more out of your pocket for each loss.

This is something to consider when choosing which deductible is best for your policy. Do you find that you are opening claims often? If so, maybe a slightly more expensive premium with a low deductible might save you more money in the long run. Are you someone who is comfortable with cash-on-hand and you seem to not be using your insurance for claims quite so often? Then it looks like a cheaper overall policy with higher deductible is for you. It is all based on your personal situation and what you’re comfortable paying, either in overall premium or each loss.

Do you still have questions? Would you like someone to look over your policies and make sure you’re covered? Reach out to one of our qualified agents, and we can see what we can do for you!

Resources

Understanding Homeowners Insurance Deductibles – Policygenius

Car Insurance Deductibles Explained – Progressive