UNDERSTANDING DEDUCTIBLES

For most people, figuring out a deductible is mainly a function of lowering their premium. Because a fair number of insureds rarely file a claim on their own policies, applying a deductible to a settlement isn’t something they have experienced. Before this happens to you, it is best to understand how a deductibles impacts your insurance interaction in different situations.

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.

Instead of trying to figure things out on your own, turn to the best resource you have: your insurance professional. Sit down and see how different deductibles will affect your premiums and your possible out-of-pocket expenses. Talk about it now while it’s still a hypothetical instead of after the fact.