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You decide on an insurance policy, hash out the details with your agent/broker, and pay the premium. After that, you don’t really give it a second thought until you need to file an insurance claim. Then the deductible rears its ugly head. In some cases a deductible does not apply, in other cases it does. So to refresh your memory…
Here is how it works: if you have a $500 “dollar deductible” and a $2,000 claim, the insurance company would pay you $1,500 ($2,000 – $500). This type of deductible is common for auto insurance and homeowners insurance. “Percentage deductibles” are calculated differently.
In the case of a homeowners insurance claim, the deductible is based on a percentage of the home’s insured value. So if your house is insured for $100,000 and your insurance policy has a 2 percent deductible, $2,000 would be deducted from the amount you are reimbursed on a claim. In the event of the $10,000 insurance loss, you would be paid $8,000.
Deductibles are different in health insurance where there a single annual deductible for the policy. With an auto or homeowners insurance policy, the deductible applies each time you file a claim.
For earthquake insurance, California residents can purchase a policy through the California Earthquake Authority (CEA). The standard CEA policy deductible is 15 percent of the replacement cost of the home. The CEA also offers a 10 percent deductible for other structures, personal items coverage up to $100,000 and $15,000 in “loss of use” coverage.
With any insurance-related decision, you really should talk with your insurance professional. Make sure you understand the consequences of setting a particular deductible, as well as other facets of your policy or policies. When you know what’s ahead, you will not be surprised.