What is a deductible?

There are a lot of factors to consider when it comes to your home and auto insurance. Sometimes it can feel like a balancing act between making sure you have the right coverage (which is super important) and trying to get the lowest price. You don’t necessarily have to give up one for the other; deductibles can help turn this tug-of-war into a win-win situation. But what are deductibles? We’ll let our expert and licensed insurance agent, Lorien, take it from here to explain what deductibles mean for both your home and auto policies. It’s simpler than you might think.

Open "Deductables 101 Video with Lorien" text transcript.

[intro music]

>> Lorien: Hey guys, I'm Lorien. I'm a customer service hero, and an insurance agent, and it's pretty fun.

>> Lorien: I'm here to talk to you about deductibles, and what they mean for you for your home policy and your auto policy.

>> Lorien: It's pretty simple, simpler than you might think.

>> Lorien: A deductible is the amount that you're responsible for paying first, in the event of a claim before your insurance kicks in.

>> Lorien: Let's just say you have a claim that costs 10 thousand dollars and your deductible's a thousand dollars. You're going to pay that thousand dollars and your insurance company is going to pay the remaining 9 thousand.

>>Lorien: If we didn't have deductibles there would be a bunch of small claims which makes your premium go up.

>> Lorien: If you have a higher deductible, you're going to be paying a lower premium in the long run. Whereas if you have a lower deductible, then your premium is going to be higher, it's like switch one for the other kind of thing.

>> Lorien: It's really up to you and your level of financial comfort, how much you're going to be able to pay out of pocket should something happen.

>> Lorien: Deductibles do apply to both home and auto policies they're a little bit different though and I'm going to help you understand how they work.

>> Lorien: Let's just say you have a house insurance claim and it's pretty expensive, and you're thinking aw man am I going to have to pay the deductible too? Well, not necessarily.

>> Lorien: A lot of companies do have what's called a deductible waver so that means that once a claim goes above a certain amount it won't have to pay that deductible.

>> Lorien: So when it comes to car insurance, the deductibles do work a little bit differently from home.

>> Lorien: For example, collision and comprehensive you can actually pick different deductibles for those two coverages depending on what works best for you.

>> Lorien: So at the end of the day if you have any questions about deductibles, all you have to do is contact your agent, they'll be able to help you.

[laughs]

What’s a deductible and why do they exist?

In insurance terms, a deductible is the amount that you’re responsible for paying in the event of a claim. If the loss is covered by your policy, your insurance will then kick in to cover the rest. For example, if your policy’s deductible is $1,000 and you have a loss under your policy that costs $10,000, you’ll pay $1,000 and your insurer will take care of the remaining $9,000. (But, this also means that if you had a loss worth less than $1,000, it wouldn’t be covered by your policy in this example.)

Although you probably wish that you didn’t have to pay a deductible at all, they exist to help keep the price of your insurance down. If we didn’t have them, there would be a lot of small claims, which would increase everyone’s premiums. Plus, deductibles act as an extra incentive for you to take good care of your home and car.

Does my deductible affect my premium?

Yes! If you pick a lower deductible you’ll be paying more in premium, but be required to pay less in the event of a claim. On the other hand, if you choose a higher deductible you’ll pay less in premium, but more if you were to have a claim. Either way, you’ll likely be paying less than if you had to cover a big loss by yourself.

What is the right deductible for me?

Your insurance company will offer you one or more options for your deductible. For example, you may have a set deductible of $1,000, or you may be able to choose between $500, $1,000, or $2,000. All of this will depend on your insurer, what you’re insuring and other factors.

But when it comes to which amount you should pick if given the chance, it’s up to you. Ask yourself how much you are comfortable with paying if something were to happen. Taking on a higher deductible may seem tempting to keep your insurance payments down, but it could put you in a sticky situation should you need to make a claim down the road. Everyone’s financial comfort level is different, and yours will likely change over time. The good news is that you can usually adjust your policy’s deductible(s) both during your policy term and at renewal.

Also, keep in mind that leasing or financing your car will affect the coverage you need, including what your deductibles can and can’t be. Check out your lease or financing agreement to make sure you meet the requirements. You don’t want to lose your car for having the wrong coverage.

How does my home insurance deductible work?

Do you always have to pay when you have a claim? Not necessarily. With home insurance, the size of the claim can determine if you need to pay your deductible or not (except for in the case of earthquake coverage). Many home insurance companies offer a deductible waiver, which means that once a claim goes over a certain amount you won’t have to pay the deductible. This amount can differ among insurers, as well as depend on your level of coverage. When a claim happens, a claims adjuster will work with you and other professionals to determine the cost of the loss and if it’s covered.

If you do have to pay a deductible under your home policy, however, the type of claim will also determine how much you’re in charge of paying. It could be a set amount (like in the examples above) or it could be a percentage. Get familiar with your home policy so you’re not surprised in the event of a claim.

How does my auto insurance deductible work?

If you have physical damage coverage on your car, this will mean that you’ll have a deductible (or two).

Many people go with the combination of collision and comprehensive coverage for their vehicle. With this coverage combo, there will be separate deductibles for both your collision coverage and comprehensive coverage. For example, you could carry a $500 collision deductible (which would apply in an at-fault accident) and a $300 comprehensive deductible (which would apply in other events, such as if your car was stolen or vandalized). Remember, based on your insurance provider’s rules, they may pick these amounts for you or you may get to make the final decision.

There are also cases under your auto policy where you may not have to pay. For example, if you have comprehensive coverage and experience a stone chip in your windshield, this could be repaired without needing to pay out of pocket. The same goes for fire and lightning damage under your auto policy in all provinces, or if your entire vehicle is stolen in some provinces (you'll still need to pay in Ontario and Quebec in this situation).

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