Demystifying Deductibles: Understanding How They Impact Your Insurance Claims
When you think about deductibles and other conditions of health insurance policies, the reality is that they seem harsh and complicated. The factor was important as if you have a claim and need to pay the excess out of your own pocket, how much you insure will also depend on a number of other factors.
What Is a Deductible?
A deductible is a fixed amount of insurance where in order to get coverage, the insured must first pay some money. It’s essential that you understand how deductibles function in order for you to be able to make truly informed decisions about your insurance purchases and also effectively manage your finances.
Types of Deductibles
There are two types of deductibles: a fixed dollar amount or percentage based. A.
Fixed Dollar Amount Deductible: This is a set dollar amount which remains the same no matter what the reason is for the claim. For example, having a $500 deductible means that you must pay towards any claim $500, whether it’s $1,000 or $10,000. 2.
Percentage-Based Deductible: Only ever calculated as a percentage of either claim amount or insured value. If, for example, you insure your home under a homeowners’ policy with a 2% deductible and the house is worth $300,000, then you get any covered claims (subject to the first $6,000) reimbursed from your pocket (2% of $300,000).
Impact on Insurance Premiums
The deductible you elect can impact your insurance premiums. Indeed, policies with more substantial deductibles carry less risk on the part of an insurer and accordingly have lower premiums. On the other hand, policies with lower deductibles normally come with higher premiums since if a claim is made then it is the insurer who will bear that much more cost.
Pick the Right Deductible
Choosing just the right deductible depends on your financial situation and how much risk you can stomach. Here are things to bear in mind before you make a decision:
– Budget: If you needed to make a claim, could you afford to foot the bill for deductibles out of your pocket?
– Premium Costs: When you raise your deductible, you should also consider what happens to your premium costs. Sometimes the amount you save on premiums as a result of selecting a higher one will outweigh increased risk that you’ll need to pay money out of your own pocket.
– Frequency of Claims: If you don’t often file claims, choosing a higher deductible can make more sense than a lower one. The former will cut down on your premiums for the long haul.
Practical Examples
The following examples illustrate what the dollar effect of deductibles can be:
1. Car Insurance: Your car insurance policy carries a $1,000 deductible. After a smash that yields $4,000 in damages has been sufficiently mended by the erosion in value of both materials and labor, you pony up those initial $1,000 and the remaining $3,000 are covered by your insurer.
2. Health Insurance: The health insurance policy you take out has a deductible of $500. When you are receiving a covered medical treatment that costs $2,000, you put in $500 and your insurer pays $1,500.
Summary
Understanding deductibles is key to successfully navigating insurance policies. Pick a suitable deductible and you can retailor your coverage to your own financial circumstances and level of risk that makes sense for it. Remember, insurance is all about managing risks: these crucial financial risks that you take on for yourself provide a large part of the final tally of risk you do–and how much someone else (your insurer) will cover.
You might want to double check your deductible the next time you go through your insurance policies. You almost certainly know that it’s a matter of making smart decisions in order to get away with cheaper coverage tailored exactly to your needs–right when those needs are about to hit hardest.