Preferred Financial Group

"We listen, we educate, then we perform like no one else in the industry."

Frequently Asked Questions

"What Is A Deductible And How Does It Work?"

 

This is the dollar amount that you, the insured, must pay out of pocket before the insurance company, the insurer, begins to cover the remaining costs.

 

Things to consider:

    • Deductibles range from zero (often referred to as “first dollar coverage” and clearly the most expensive) to multiple thousands of dollars. However, deductibles are typically offered by insurance companies in these increments:  $100, $250, $500 & $1,000.
    • There is an inverse relationship between deductible and premium (cost of insurance). In other words, a policy with a $100 deductible will carry a much higher premium than one with a $1,000 deductible.

 

Illustrated:

When Bob purchased his auto insurance, he selected a policy with a $1,000 deductible.  Selecting the higher deductible meant a lower premium, which was very appealing, even though he realized that, in the event of a claim, he would be responsible for the deductible amount of $1,000 before the insurance company began covering the loss up to the policy limit. Shortly thereafter, Bob was involved in an auto accident which caused $5,000 damage to the auto he hit. He was not surprised when he learned that his insurance company paid $4,000 on the claim, leaving him with the responsibility for paying the $1,000 deductible.