What is the insurance deductible?

What is the insurance deductible?


An insurance contract has several peculiarities. Franchising is one of them. It is therefore necessary to consider its amount before signing any document. Because it is you, as the insured, who will pay this amount. But what is the franchise, anyway? More clearly, it is the amount, not reimbursed by the insurer, that the insured must pay in the event of a claim. How is it encrypted? In the initial application, the insurance company will give you several options for the amount and calculation of the deductible. Either way, the amount is always the responsibility of the beneficiary.

How does an insurance deductible work?

In the contract, each of the situations covered will be accompanied by its excess, that is to say its type and its price. The latter can be calculated in various ways. It can be a fixed sum, for example $ 250 or $ 500 for automobile insurance, a percentage corresponding to the amount of the compensation, or even a combination of the two.

Why do insurers require a deductible?

Insurance companies are for-profit businesses. They aim to protect you, but also to generate income. Requiring a deductible therefore allows them to eliminate small claims that cost more in management costs than in compensation or to reduce the phenomenon of moral hazard (for example, a person will take more risks in the car knowing that an accident happens, she will not have to pay anything). Thus, whether an insured chooses whether or not to have a deductible associated with his contract depends on his probability of suffering a loss, his financial situation and his risk aversion.

Types of deductibles

There are several types of insurance deductibles, but the most common are:

    The simple or relative deductible offers full compensation for insurance of property such as auto, motorcycle, borrower or home.
    Compensation for the absolute or fixed deductible is partial, as the deductible deduction for auto, motorcycle, home, borrower or travel insurance is deducted.
    The proportional or fixed deductible offers an amount between the threshold and ceiling of the deductible. Compensation is partial, so it covers a percentage of the damage to the car, motorcycle, home, borrower or travel.

Finally, the principle is that the lower the deductible, the higher your monthly payments. Conversely, the higher your deductible, the lower the monthly premiums will be. This is because the insurer pays a smaller portion of the costs of the damage. But one thing is certain, every insurance policy must detail the calculation of the deductible.

Situation

Your car is parked in your driveway… under a tree, as always. One stormy evening, a branch breaks and falls ... on the car. The damage is assessed at $ 1,500. You have a $ 300 deductible, which you will pay at the repair shop. The balance ($ 1,200) will be paid by your insurer.

You decide how much of the deductible you are willing to pay. It's up to you to choose the right deductible for your insurance.