Understanding Deductibles

Getting any type of insurance is confusing as it is, let alone understanding the deductibles that are written along with it. However, if you are to fully take advantage of your insurance coverage premiums, it is imperative to know what deductibles are. From a layperson's viewpoint, the deductible has to do with the rates of the insurance premiums and the out-of-pocket amount that has to be paid when making a claim.

Understanding Deductibles

Nearly all insurance policies are written with deductibles. The deductible is the first part of the twofold process of making a claim from the insurance company. This is essentially the insurers' way of discouraging relatively small claims and making the process convenient for the insured.

To better understand how the deductible works in insurance terms, let's look at an example. Let's say you accidentally hit another car. Repairs for the accident cost $4000 and your deductible is $400. You will have to pay the $400 out of your own pocket before your insurer will pay the remaining $3600.

As said before, the deductibles are the insurers' way of preventing the insured from making very small claims. The process of making the claim is not only inconvenient and time-consuming, but it also involves additional processing costs that don't really benefit anybody. For a relatively small claim, the time, effort and money that are spent in behalf of the insured can prove to be more valuable than the total amount of the claim. Therefore, the deductible saves everybody the added inconvenience of making small claims.

In return, the insurer offers lower premium rates for policies that have large deductibles. So the amount of the deductible you agree to pay will directly affect the amount of premium that you will have to pay. Keeping in mind this relationship between the deductibles and the rates of insurance premiums, it should be easy for you to select a plan that best suits your budget and coverage needs.

How to decide between a higher or lower insurance deductible?

- Probability of having a claim – You’ll never be able to predict when you will have an insurance claim, but you can consider factors that should give you an idea of your odds of being in an accident.

- Determine your finances – Determine how much you are capable of paying before you decide on the amount of your deductible. Don’t choose a deductible that is more than what you are capable of paying.

Deductibles are a part of nearly all types of insurance. The implementation is largely consistent, with the exception of health insurance. Since the number of health insurance claims are difficult to determine, health insurance providers settle with a yearly deductible on top of the insurance premiums. These are just the basics of deductibles. It will be to your advantage to fully understand deductibles as well as other terms and concepts of insurance before choosing a policy. Your local independent insurance agent can answer any questions you have and help you find the right policy for you and your family.

By Matt Reynolds - Google+

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