Insurance Deductibles: Home and Auto Best Practices

How do you choose the right amount of deductible for home insurance? Let’s look at how a home deductible works: You generally pay your deductible every time you file a home insurance claim. There are two home insurance deductible types for a standard policy:

  1. Dollar amount deductibles are the fixed dollar amounts you pay out of pocket when you file a claim for a covered loss. Deductibles typically are $500, $1,000 and $1,500, with $1,000 being the most popular. If a tree falls on your house and fixing the damages costs $6,500, you’ll pay the first $1,000 and your insurance company pays the remaining $5,500.
  2. Percentage deductibles are based on your home’s insured value. If your house is insured for $200,000, your policy has a 1% deductible, so $2,000 would be deducted from any claim payment.

Here’s the balancing game you have to play: The higher your deductible, the lower your premiums. You can limit a surprise out-of-pocket expense by going with a lower deductible. However, that may cost you in the long run. A good rule of thumb is to look at the cost deductible and ask yourself, “Would paying this cause me serious financial harm?” 

Finally, note that there may be special rules regarding hurricane and flood insurance — check with your insurance company or agent on these special policies and deductibles.

Auto Insurance Deductibles
You also have to think about car insurance deductibles. Car insurance policies are broken into multiple types of coverage. Liability insurance includes bodily injury and property damage coverage; neither typically has deductibles. But deductibles apply in two forms of coverage: 

  • Collision, which covers damage done to your vehicle when you’re in a crash, including repairs and any replacements. Collision doesn’t cover damage you caused to the other property.
  • Comprehensive, which covers damage done to your vehicle in all instances other than a crash that you’ve caused. This may include falling tree limbs, hail or any other type of damage that your car may incur.

Your deductibles, typically around $750, will first be applied to any damages. The remainder would be covered by your insurer through your collision coverage. When the other driver is at fault in an accident with you, you may file a third-party claim against that driver’s property damage coverage. Your insurer may pursue a process called subrogation to recoup the amounts it has already paid, helping reclaim any amount you paid through your deductible.

How do you choose your auto insurance deductible? Ask yourself how much will you be able to pay if an accident occurs? Set your deductible at a level where you can reasonably pay out-of-pocket expenses without impacting your financial situation. Because auto deductibles are on a per-claim basis, the frequency of your claims will be an important factor. For example, if your policy has a $500 deductible and you’re involved in four separate claims of less than $500 each, you’ll be responsible for 100 percent of all payments. 

Should you choose different deductibles for different coverage? Comprehensive is typically cheaper, so many go with a lower deductible.

Finally, explore vanishing deductibles, which are becoming a popular option. As described by one leading insurance company, you can get $100 off your deductible for every year of safe driving, up to $500. If you’re a safe driver, this can be a very good deal.

As with any insurance product, go with a professional who can help you find the right product for your situation.

You can count on Ericson, Scalise & Mangan, PC to provide you with sound guidance and experience in these uncertain times. For assistance with your legal needs, please contact us today at (860) 229-0369, or email us at info@esmlaw.com.