You get into a little fender-bender in your car. Not too much damage but you decide to turn in a claim. All the appropriate estimates are obtained and your insurance company pays for the repairs no problem… except for your deductible. Doh! You forgot about that.
Just to refresh your memory, a deductible can be either a specific dollar amount or a percentage of the total amount of insurance on a policy. Logically, the higher your deductible is, the lower your premium will be. Since you are shouldering more of the risk, you pay less up front.
Here is how it works: if you have a $500 “dollar deductible” and a $2,000 claim, the insurance company would pay you $1,500 ($2,000 – $500). This type of deductible is common for auto insurance and homeowners insurance. “Percentage deductibles” are calculated differently.
In the case of a homeowners insurance claim, the deductible is based on a percentage of the home’s insured value. So if your house is insured for $100,000 and your insurance policy has a 2 percent deductible, $2,000 would be deducted from the amount you are reimbursed on a claim. In the event of the $10,000 insurance loss, you would be paid $8,000.
Deductibles are different in health insurance where there a single annual deductible for the policy. With an auto or homeowners insurance policy, the deductible applies each time you file a claim.
For earthquake insurance, California residents can purchase a policy through the California Earthquake Authority (CEA). The standard CEA policy deductible is 15 percent of the replacement cost of the home. The CEA also offers a 10 percent deductible for other structures, personal items coverage up to $100,000 and $15,000 in “loss of use” coverage.
For more information on deductibles, how they affect your premium, and any other questions you may have, make an appointment with your insurance professional. They will explain all facets of your policies and help figure out how you can obtain the coverage you need at a price you can afford.