Insurance Deductibles

In the United Kingdom, deductible is known as "excess". This makes sense when you think about it. Deductible is the amount of money that you are required to pay that is not covered by the insurance company. It was first introduced on commercial insurance policies by Norman Baglini in 1952. So much for Norman, he won't go down in my record book, but as far as the insurance industry is concerned, he's a pretty good guy with a great idea. The deductible is now standard on just about all insurance policies. The rule of thumb is that the higher your deductible, the lower your premium.

On auto insurance policies, when you submit a claim for damage to your vehicle, a deductible will apply. The same would apply to homeowner's insurance or renter's insurance. And with the skyrocketing cost of health insurance, many people are opting for higher deductibles as a way to control the cost of insurance.

So, let's think about an auto insurance policy that has a $500 deducible. If an accident occurs and damage to your vehicle is $5,000, you pay $500 and your insurance company pays the remaining $4,500.

In some instances, it's prudent to determine the amount of damage first to see if it's under your deductible. If you bump into your own mailbox and put a minor scratch on your car, get a quote first to determine the amount of the damage. If it's $200 and your deductible is $500, you will not get anything back from your insurance company.

In storm-prone areas of the country, insurance companies may require a "hurricane deductible" or "wind deductible" that is placed on your homeowner's insurance. Instead of a fixed dollar amount, the wind deductible may be a percentage of the value of your home, such as 2% or 5%. In these areas, it's especially important to shop around not just for price, but for deductibles! But always remember, the higher your deductible, the lower your premium.

Your premium will be calculated based on governmental requirements and regulations, or by the different factors that are considered when looking at an insurance policy.

Keep in mind that different states in the US have liability requirements for auto insurance, and that you're not really insured without meeting those requirements. Sometimes in order to meet your state requirements, you'll be forced to pay more than the "minimum" premium because you need to fulfill the state requirement.

Lawrence Reaves writes for Virginia Insurance Group, a leading Richmond insurance broker offering products and services such as Richmond car insurance and Richmond homeowner's insurance. Virginia Insurance Group can be found online at: VirginiaInsurance.com.