You are considering the idea of purchasing home or rental insurance. Good idea. While it is a necessity to cover your home (and even the items that belong to you), a lot of people may just get a policy without understanding how it works.
In this write up, we will discuss one aspect of your insurance policy. You might be asking yourself questions like “what is a deductible in insurance”? We will answer that question and explain how it works shortly.
Before you even purchase a policy, you will have at least a basic understanding of how this and some other parts of the policy works. Keep in mind that depending on the insurer, you may have to choose between one package level and the next. One policy type can cover the basics while another will cover some extras.
With that said, let’s get started:
What Is A Deductible?
A deductible is a monetary amount that you choose when you purchase an insurance policy. That monetary amount will be subtracted from any claim payouts you may have. Here’s an example of how it works:
Let’s say you have a laptop that is about $1000. One day, someone breaks into your apartment and steals it. The deductible is used as your ‘participation’ in the loss or damage of your property.
If your deductible was $500, the insurance company will pay $500 in order for it to go towards any expenses that may incur for replacing the item. Granted, you do need to budget for a monthly premium, but the insurance company paying a portion of the item might make a lot more sense compared to purchasing it outright.
Your deductible will be a fixed amount. However, some insurers may pay you based on a percentage basis. Your deductible can also depend on your geographic location.
Because of insurance regulations, deductions can differ from one state to the next. If possible, research your state’s laws to see which deductibles you may be legally entitled to with your policy. This could also affect the insurance available in your state.
How deductibles work?
Deductibles will be chosen at the time when you enroll in an insurance policy. Depending on the type of insurance (renter or home insurance), the amounts will vary. Keep in mind the deductible for home insurance will be a larger amount compared to the policies for renters.
The insurer will pay you an amount based on the item valued minus the deductible. As we have stated in the previous example, if you file a claim on a $1000 laptop and the deductible is $500, the insurer pays you $500.
However, the claim must be approved before the amount is paid out. However, if there is damage or loss is less than the deductible, there is no need to file a claim. In other words, if your laptop was $500 and your deductible was $750, the insurer will not pay you.
Choosing the ‘right’ deductible
Did you know that the smaller the deductible, the more you pay? This might shock you at first. And what people don’t realize is that this happens all the time.
While most people choose to purchase a lower deductible, they are making a mistake that they are not aware of. For one, there is no true ‘right’ deductible. But you’ll want to find one that will make sense.
Not to worry, we will help you decide right here. Do you have three months’ worth of pay in your account? If yes, keep reading. Now, consider which items are easily replaceable.
At the same time, ask yourself if you keep your items safe. Also, determine how much you can cover on your own before filing a claim. And finally, determine whether or not you want to pay a large amount of money in one payment instead of a higher monthly premium.
If you answered yes to such questions like the three months’ pay and whether you keep your items safe, that’s when a higher deductible makes sense. Otherwise, you may want to consider an insurance policy that is more low-end.
Now That You Know…Get Home or Renter’s Insurance Now
Since you now have a basic understanding of how deductibles in insurance work, you can consider choosing an insurance policy that will be best for you. Choose which deductible is best for you based on your current situation and the items you currently have in your home. No longer will you ask, ‘what is a deductible in insurance’ or ‘what will I do if something bad happens?’
It may seem like a cost you would rather not deal with, but budgeting for monthly costs will always win out against the risk of being forced to pay huge lump sums if something goes wrong.