People don’t think about things like deductibles until they file a claim and get shorted on the settlement. Actually, they are not getting “shorted.” The insurance company has just subtracted – or deducted – the policy deductible. Before you decide how much you will be out-of-pocket, you need to understand what related factors in a deductible are.
A deductible can be either a specific dollar amount or a percentage of the total amount of insurance on a policy. Logically, the higher your deductible is, the lower your premium will be. Since you are shouldering more of the risk, you pay less up front.
Here is how it works: if you have a $500 “dollar deductible” and a $2,000 claim, the insurance company would pay you $1,500 ($2,000 – $500). This type of deductible is common for auto insurance and homeowners insurance. “Percentage deductibles” are calculated differently.
In the case of a homeowners insurance claim, the deductible is based on a percentage of the home’s insured value. So if your house is insured for $100,000 and your insurance policy has a 2 percent deductible, $2,000 would be deducted from the amount you are reimbursed on a claim. In the event of the $10,000 insurance loss, you would be paid $8,000.
Deductibles are different in health insurance where there a single annual deductible for the policy. With an auto or homeowners insurance policy, the deductible applies each time you file a claim.
For earthquake insurance, California residents can purchase a policy through the California Earthquake Authority (CEA). The standard CEA policy deductible is 15 percent of the replacement cost of the home. The CEA also offers a 10 percent deductible for other structures, personal items coverage up to $100,000 and $15,000 in “loss of use” coverage.
Ask your insurance professional what deductibles you have now and how adjusting them up or down would affect your premium. Talk over which coverages you may be lacking and what, if any, you may not need. Whether it’s paying a deductible our just your premium, it’s all money coming out of your pocket. Let your insurance professional help you keep as much as you can.