Deductibles 101

What's a good deductible for my insurance?

If you've ever had insurance before, chances are you've heard the term 'deductible'. 

Let's just go ahead and define it:

It's the amount of money a policyholder is responsible for in the event they make a claim on their policy.

WHY IS THIS IMPORTANT?

Well one reason is that DEDUCTIBLES are typically DIRECTLY RELATED TO THE COST OF THE INSURANCE POLICY. 

The MORE money a person is willing to pay for a deductible, the LESS money an insurer usually charges for the policy. 

Another IMPORTANT reason to care about your deductible is that you should MAKE SURE YOU CAN AFFORD TO PAY IT IF YOU NEED IT.

*So don't get carried away with $5,000 deductibles on your 2006 Honda Civic.  ​

2 Deductibles - 1 Policy

There's nothing new about the idea of multiple deductibles in one policy.
Consider Auto Insurance being split into collision and comprehensive deductibles.

What's WORTH KNOWING NOW - Is how this has made it's way into both HOME INSURANCE and COMMERCIAL PROPERTY INSURANCE.  

​Many insurers will give you a $500 or $1,000 deductible on the house....but then require a $2,000 deductible for any WATER damages. 

In some cases they may remove or limit coverage on certain types of damage altogether. Ex. Vandalism by tenants. 

The reasoning

By PUSHING UP DEDUCTIBLES insurers hope to:

​1) decrease the number of small claims being made.
2) ease the pressure of yearly premium increases.
3) make policyholders care more about AVOIDING losses altogether.

Advice

Don't apply a one size fits all approach here.

Some carriers offer GREAT price breaks for certain deductibles, and way less of a break on the next level up.

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EXAMPLE: Home Policy costs $1000 a year with a $500 deductible.

That carrier may offer you $850 a year for a $1000 deductible.
(that's a solid price break if you're wondering)

​Then $800 a year for a $2,500 deductible.

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​The last option is not as attractive in my opinion, but someone trying to minimize their yearly premium may feel differently.  What is reasonable for one family to payout in the event of a loss may not be for another.

KEY TAKEAWAYS:

1) Understand what a policy requires of you if you need to make a claim. 
2) Be comfortable paying the amount of a deductible if you need to.
3) Minimize the cost of coverage by figuring out what risk you're willing to carry.

CLAIM SCENARIO - Deductibles in action 

FUN FACT: Did you know a deductible applies to the LOSS and not to a policy limit?

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Example: Jewelry has a $5000 maximum payout on a policy and a $1000 policy deductible.  

Policyholder 1 loses their $6,000 engagement ring while taking a ride on the Halifax Harbour Hopper. Lucikly they listened to a broker who helped them purchase a policy that included 'mysterious disappearance'.  

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Most consumers would probably do the math like this:

$6,000 ring
Maximum jewelry limit is $5,000.
LESS the $1,000 deductible = $4,000. 
.....but that'd be incorrect. ​

The ACTUAL calculation takes a DEDUCTIBLE from the LOSS and THEN applies any policy limits.  

$6,000 ring
- Deductible (1000)
= $5,000
In this case, policyholder 1 would get a $5,000 payout. 

If the above has you feeling overwhelmed, talk with a broker. 
Outsource some expertise. 


-MD