What is Meant by Deductible In Insurance Policies?

What is Meant by Deductible In Insurance Policies?

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Deductible In Insurance Policies: While getting yourself an insurance policy you might expect your insurer to cover all the expenses as and when they arise but that might not always hold true. Sometimes you first have to pay a fixed certain amount and the rest is covered by the insurance company. The amount that you pay is termed deductible.

Understand your Deductible In Insurance

Paying the deductible means that you and the company are sharing the risk of potential financial losses. For example, let’s just say that your policy has a fixed deductible of the value of $17,000. Now suppose that you suffer a loss of $30,000. It means that if you raise a claim for insurance you first have to pay $17,000 then the company will aid you by paying the rest of the amount. And if your loss is of a value lesser than $17,000 you cannot raise an insurance claim instead you would have to tighten your pockets and be responsible for your own losses.

The benefit of paying a deductible is that the premium amount you need to pay gets reduced considerably as you share the burden with the company.Deductible In Insurance Policies, insurance, aviva, canada life, insurance near me, car insurance near me, insurance agency, auto insurance near me, commercial truck insurance,

Why Insurance Policies have a clause for deductibles?

Deductible helps the insurer share the financial load with the insured person. The reason for the deductible clause is to cover the following loopholes:

Moral Loophole

Deductibles help to reduce the behavioral danger of moral hazards associated with insurance coverage. The danger that an insured will not act in good faith is known as a moral hazard. Since insurance plans shield policyholders from risks, there is an implicit moral hazard: the policyholder may engage in risky behavior without fear of financial repercussions.

For example, if a driver has a vehicle coverage plan, he might feel tempted to drive recklessly or leave his vehicle unattended in a dangerous area because they are protected against harm and theft. But Since the beneficiary is also responsible for a portion of the expenses, a deductible reduces this danger.

Financial overstrain

Deductibles are also used in insurance policies to ensure that the insurer is financially secure. A well-structured insurance policy will shield you from catastrophic loss. A deductible acts as a buffer between a minor loss and a genuinely serious one. Let’s assume that an insurance policy would not have a premium. The insurer will be responsible for the expense of any minor claim, regardless of the number. This will result in a large number of lawsuits and boost the policy’s financial costs. It may also make it more difficult for the insurer to react appropriately to policyholders’ real catastrophic losses.

When do I have to Pay a Deductible?

You are supposed to pay a deductible every time you make an insurance claim. The premium is a pre-determined fee that you must pay out of pocket if you file an insurance claim before the insurer pays for the losses. Let’s understand it with an example, say you have a deductible of $700. If your claim is below $700 you the company won’t be responsible for the coverage and you would have to pay it out of your own pocket but if the amount of the claim is above $700 then after you pay this amount company will pay for the rest of your losses.

Thank you for reading this article on What is Meant by Deductible In Insurance Policies? If you found this article helpful share it with your friends and family. It can help them clear their doubts and raise awareness on the topic. For any queries, you can connect with us via mail at aip@akaninsurance.ca