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?"

 

The dollar amount you the “insured” will have to pay out of pocket before the insurance company “insurer” begins to cover the remaining costs.

 

Things to consider:

    • The range for deductibles is zero (often referred to as “first dollar coverage” and clearly the most expensive) to multiple thousands of dollars. However, what is typically offered by insurance companies are: $50, $100, $250, $500, $1,000, $2,500 & $5,000.
    • There is an inverse relationship between deductible and premium (cost of insurance). That is, a $50 deductible will carry a much higher premium than a $2,500 deductible.

 

Illustrated:

Bob and Deb’s home catches fire and before the fire department can contain the fire it caused $75,000 in damage. Fortunately they had a homeowner’s insurance policy with dwelling coverage of $500,000 and a deductible of $2,500. ABC Construction performed the repairs for $75,000 of which Bob and Deb paid $2,500 and their insurance company paid the balance of $72,500.