A deductible is the amount of money you’ll pay for losses or damages, before your insurance company steps in and reimburses you.
What is a deductible?
Think of an insurance deductible as your participation in a damage or loss. You’re saying, “I commit to paying X dollars for any future claim, and my insurance company will cover the rest.”
How deductibles are structured
The typical homeowners insurance deductible is between $250 and $5,000, while renters insurance deductibles range from $250 – $2,500. They’re usually structured in increments ($500, $1,000, $1,500, etc.), meaning you cannot choose a deductible of $738 for example.
That said, it’s up to you to choose your deductible when buying a policy. In general, the higher the deductible you pick, the lower your monthly premium will be, and vice versa.
While your deductible will most likely come in the form of a fixed dollar amount, some companies also offer deductibles as a percentage of an insured value.
Note: Deductibles may vary based on where you live, as insurance regulations differ from state to state.
How do deductibles work?
As mentioned in the previous section, a deductible is an amount you choose when purchasing a policy that’ll be subtracted from any future claims (i.e. your official request for reimbursement).
So, say someone broke into your place and stole your TV and computer (bummer!). It would cost $3,750 to replace these items. If you chose a $750 deductible, filed a claim, and it was approved, you should be on the lookout for a check or wire transfer from your insurer. The exact amount depends on whether or not you choose to have your stuff valued on the basis of replacement cost or actual cash value, but it should be somewhere between $2.5 – $3K, which is great!
Conversely, say you’re faced with $500 in damages. With a $500 deductible, there’d be no need to file a claim, since you wouldn’t receive anything back from your insurer ($500 – $500 = $0).
The relationship between your deductible and insurance premium
Generally speaking, the higher your deductible, the lower your monthly premium (and vice versa).
Well, a higher deductible means you take on more financial responsibility in the event of a claim, which saves your insurer money in the long run. The benefit for you is lower monthly premiums – a great discount to capitalize on if you know you have enough money to set aside for a rainy day.
So, a good way to save a few extra $$ per month is to think long and hard about how much you can put down in the future.
How to choose the right deductible
A helpful strategy in choosing the right deductible for your financial situation is to think about something of value in your apartment or home.
What would you be able (or willing) to pay today, in full, if you had to replace it?
Say you have a 13-inch MacBook Air that cost around $1,150. What part of that would you be able to pay right now, if it were stolen? All of it? Some? None?
The more help you think you’ll need, the lower a deductible you should choose and vice versa. Just keep in mind that choosing a lower deductible may raise your monthly premium.
To sum this up, the more “loss” you can take on, the higher your deductible will be, and the same goes for the opposite situation.
Where to find and how to change your deductible
If you happen to forget what deductible you chose, you can always check out the declarations page on your insurance policy.
If you have Lemonade, you can simply open your app and check. Additionally (for Lemonaders), if you’d like to change your deductible at any point, click “Edit Coverage” on the home screen of the app, scroll down to the deductible section, and change away! It’ll only take a few secs, and you’ll get confirmation of your updated policy via email right away 🙂
Deductibles for specific events
Insurance companies also offer unique deductibles for specific things like hurricanes or fires, which are a percentage of a specific limit. So, make sure to double check for these add-ons (called endorsements, in insurance) when you’re purchasing a policy.