What Is an Insurance Deductible?

Leibel Insurance Group

A deductible in insurance refers to the predetermined amount of money an insured person is responsible for paying out of their pocket before their insurance coverage becomes active. A deductible is the sum of money an insured person is responsible for paying out of pocket before their insurance policy begins to pay for any of their expenses.

Types of Deductibles

There are two primary categories of deductibles: those that apply per incident and those used annually.

Each claim or incident is subject to its unique per-incident deductible. For instance, if an insured person in Edmonton or Calgary has a per-incident deductible of $500 and experiences a car accident that results in $1,500 in damages, the insured person will be responsible for paying the first $500 of those repairs out of their pocket. Their insurance company in Edmonton or Calgary will cover the remaining $1,000. If the same individual experiences a separate incident in Edmonton or Calgary that results in another $1, 000 in damages, they will again be required to pay the first $500 out of their pocket before their insurance coverage kicks in.

Deductibles and Premiums

Insurance premiums are the consistent payments made to an insurance provider regularly in exchange for coverage. Having a higher deductible typically results in lower premiums. It is because the insured assumes a more significant portion of the risk and financial responsibility for their loss. On the other hand, when deductibles are lower, insurance premiums are typically higher because the insurance company takes on a more significant proportion of the risk and financial responsibility for the insured person’s loss.

Considerations When Choosing a Deductible

When choosing a deductible, it’s essential to consider the following:

Your current financial situation

If you are in a position where you can pay a higher deductible out of pocket in the event of a claim, selecting a higher deductible may allow you to reduce the amount of money you pay each month for your premiums. However, if you do not have the financial resources to pay a higher deductible, it may be more financially viable to choose a lower deductible and pay slightly higher premiums.

Your insurance policy

It’s boring to read, we know! But you should read over your insurance policy and understand what is and is not covered or any limitations or exclusions. Don’t worry though, we’re already here to help you understand your policy.

If you’re interested in a quote or you’d like more information or details on how your deductible can impact your premium, our team of brokers is ready when you are.

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