How does my deductible have an effect on my policy?
Many people each day, all around the world buy insurance. Most people use an agent or go direct to the insurance company, but never really ask about that thing called a deductible. Now this is going to aim more towards property and casualty insurance (auto, home, etc), but the point is I want to let you know how this part of your policy works.
When you get into a car accident, the coverage payout will depend on if your at-fault or not. When you are not at -fault, you will go after the other parties insurance for damages, but what if it is your fault? What if you hit another car or an object, who fixes your car then? That is where a deductible comes in. Now deductibles can vary based on how your insurance contract is laid out, but we will stick to $500 deductibles since it is the average.
Lets say for example you hit a tree and your car is damaged. You can’t sue the tree or go after it’s insurance, you need your car fixed. This is where your deductible will come in, you will pay out your $500 and the insurance will pick up the rest of the tab. In this case you are also known as the co-insurer.
When I was working in insurance, one thing that irked me was people raising their deductibles just to beat their price increase. This is never ideal for two reasons, 1. you won’t beat the price increase and 2. you lose insurance coverage. Number 2 is the most important part of your policy. When you use your deductible a contingency is your damages surpass your deductible in order to get coverage. For example, if you have a scratch on your car from some falling debris maybe from a truck on the freeway, you can report that to your insurance company. Your insurance company will have an estimate done by a body shop. Now if the damages are lower than $500 (lets say the estimate was $300), your claim will be denied. You won’t need the insurance to pay anything, why would you pay $500 to get $300 out of the insurance company, right?
Now if the damages in that same situation was $600, then you will be able to use your insurance. You pay $500 and the insurance company would pay the remaining $100. Now imagine if you raise your insurance up to $1,000 and you have the same situation where the damage was $600. Well my friend, you will be paying $600 out of pocket. $600 is less than $1,000.
In conclusion, raising your deductible is not always the answer to your policy increase. Now it’s your policy and the agent is happy to keep you as a client, but just be cautious about what your doing.