What is a deductible anyway? It seems simple, but I get a lot of questions about deductibles, so I thought I'd take a minute and explain the basics to you.
The deductible is the amount you pay when you have a claim.
You must pay the deductible amount and then the insurance company will pay for the rest of the loss.
There are a number of reasons why deductibles exist.
For one, there's a lot of expense associated with processing a claim.
By requiring deductibles, insurance companies reduce the expense of processing many small claims.
This is why raising your deductibles can dramatically lower your premium in many cases.
The insurance company wants you to raise your deductibles, so they only have to process big claims, and they give you a big price break for that.
When you pay small losses yourself you not only get the premium break, but your losses are tax deductible.
So, it can be cheaper to raise your deductibles and save the premium.
Another reason for deductibles is to reduce "moral hazard.
" Insurance fraud is a huge problem as is.
Dishonest people would create even more fraudulent losses if there were no cost to them.
Remember when setting up or changing your insurance that balance is the key ...
raising your deductibles high enough to get a good premium reduction, but not so high that you couldn't cover the deductible in the event of a loss.