How do insurance deductibles work?
Most home and motor insurance policies specify “deductibles” for certain coverage categories, which affect how much you pay for insurance and how much your insurer will pay out when you make a claim. Whether you’re comparing insurance quotes or getting ready to make a claim, it’s important to understand what a deductible is, how to choose the right deductible, and when you will have to pay your deductible.
What is a deductible in an insurance policy?
In your insurance policy, the deductible is the amount that is deducted from the amount your insurance company will pay out when you make a claim. In other words, it’s the amount that you agree to pay out of your own pocket before your insurer will pay the remaining balance of a claim. For example, if your home insurance deducible is $1,000 and you make a claim for $10,000 worth of damage, you will have to pay $1,000 out of pocket, and your insurer will pay the balance of $9,000.
Depending on your insurer, your deductible could be listed as a specific dollar amount, or as a percentage of your total insured value.
Why do insurance policies have deductibles?
To put it simply, deductibles are in place to help keep insurance as affordable as possible for everyone by helping to:
- Prevent fraud by removing the temptation to submit false claims, which leads to an increase in overall claims costs for insurance companies
- Prevent small, unnecessary claims and situations where the cost of processing a claim would far outweigh the actual cost of the required repairs
- Keep more of your money in your pocket up front — when your insurer doesn’t need to invest in processing smaller claims or pay the full amount of larger claims, they can share those savings with you through lower premiums
Do I have to pay my deductible for every claim I make?
You won't necessarily have to pay your deductible for every claim you make — it depends on the cause of your loss and the terms in your policy.
How does your insurance deductible affect your premium?
Choosing a higher deductible for your insurance policy will typically help decrease your premium, because you’re agreeing to pay more out of your own pocket each time you make a claim (meaning your insurance company pays less). But before you increase your deductible, make sure you’d be comfortable paying the higher amount out of your own pocket if you had to make a claim today. You should always choose a deductible amount that you could easily pay out of pocket if you needed to.
If you’re a BF&M customer, you can log in to review your insurance policy online and contact our customer service team at +1 441 295 5566 if you have questions about your deductible.