The deductible is one of the most important numbers in your policy, yet many policyholders do not know theirs until a claim is filed.
What a deductible is
A deductible is the amount you agree to pay out of pocket before your insurance coverage applies to a covered loss. If you have a five hundred dollar deductible and incur a covered loss of two thousand dollars, you pay the first five hundred and the policy considers the remainder, subject to its terms and limits.
Deductibles exist to keep premiums manageable and to discourage very small claims. By accepting responsibility for the first portion of a loss, you reduce the insurer risk, which is reflected in a lower premium.
The premium tradeoff
There is a direct relationship between your deductible and your premium. Choosing a higher deductible generally lowers your premium, while a lower deductible raises it. The right balance depends on your circumstances, particularly how comfortably you could pay the deductible if a claim arose tomorrow.
It is worth knowing that some policies carry different deductibles for different perils. A homeowners policy, for example, may have a separate, percentage-based deductible for certain types of losses. Reviewing your declarations page to confirm each deductible prevents surprises.
Planning for your deductible
Because the deductible is the amount you must pay before coverage applies, it is wise to keep that sum accessible in savings. A deductible you cannot readily pay can turn a covered loss into a financial hardship, defeating much of the purpose of the coverage.
Reviewing your deductibles periodically, and confirming you understand each one, is a straightforward administrative habit that keeps you prepared for the moment a claim becomes necessary.