What is a deductible…and what’s the right deductible for me?

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A deductible is the part of a claim that you, as the policyholder, agree to take responsibility for. If you make a claim for $10,000 and have a $500 deductible, if the claim is approved, the insurance company will pay $9,500. If the claim is for repairs to your car, you may have to pay the deductible directly to the shop before they’ll fix your ride.

For home and car insurance, $500 and $1,000 are the most common deductibles. Some business policies have deductibles as high as $50,000 or more. You should make sure your deductible is low enough that you will be able to come up with that money on a moment’s notice if needed.

You can save about 10% on your home insurance and 2-3% on your auto insurance by increasing your deductible from $500 to $1,000.

To understand what a deductible is and why it exists, we first need to understand that insurance is there to protect you from costs that you can’t easily afford to pay for yourself. For example, if your house burned to the ground, most of us wouldn’t have the money on-hand to pay for it to be rebuilt. Although you can get insurance against smaller losses, it often makes more sense to just pay for these yourself. If your $900 golf clubs are stolen, most of us are able to buy a new set, whether it be paid for in cash or on a credit card.

Deductibles help to reinforce the above principle. If you have a $1,000 deductible, it wouldn’t make sense to claim your stolen clubs (even if the claim was approved, you’d get no money back). But it would definitely make sense to claim for your charred home. You would pay the first $500 or $1,000, but the total cost of rebuilding would be in the hundreds of thousands of dollars.

What deductibles are available?

When you get car or home insurance, your broker will probably quote you a premium based on one of the standard deductibles, usually $500 or $1,000. Most insurance companies will allow you to opt for a higher one, maybe $1,500 or even as much as $2,500. A deductible can theoretically be any dollar value, and you can get a lower premium by increasing it, but on a standard auto policy, you typically cannot choose a deductible lower than $250, or higher than $2,500.

Deductibles can also be different for different types of claims. In an auto policy, you can choose a different deductible for collision vs. comprehensive claims, for example.

How much can I save by increasing my deductible?

To illustrate how much changing your deductible can affect your premium, we ran auto and home quotes for four sample Ontarians:

  • Abel, married male, 47, St. Catharines (L2R), 2017 Honda Accord, clean driving record
    • Owns two-bedroom condo, one claim in 2020
  • Felicity, single female, 31, Thunder Bay (P7A), 2009 Pontiac Vibe, 2019 speeding ticket
    • Rents two-bedroom apartment, no claims
  • Bini, married female, 57, Barrie (L4M), 2015 Cadillac XTS, 2017 careless driving ticket
    • Owns four-bedroom house, no claims
  • Iain, widowed male, 63, Whitby (L1N), 2020 Toyota Tacoma, clean driving record
    • Owns two-bedroom condo, claims in 2018 and 2020
Auto and home quotes for four sample Ontarians
 Abel’s premiumFelicity’s premiumBini’s premiumIain’s premium
Home/Condo/Tenants Insurance    
$250 deductible$298$346$783$340
$500 deductible$274$318$718$314
$1,000 deductible$251$288$653$288
$1,500 deductible$240$276$624$288
$2,000 deductible$240$276$624$276
$2,500 deductible$240$276$624$276
Auto Insurance    
$250 deductible1$1,004$1,257$1,096$1,072
$500 deductible$977$1,233$1,059$1,038
$1,000 deductible$949$1,207$1,024$1,005
$1,500 deductible$949$1,207$1,024$1,005
$2,000 deductible$926$1,189$990$969
$2,500 deductible$926$1,189$990$969

All of the above premiums assume the following:

  • Client agreed to a credit check for home insurance
  • Home/condo/tenants all risks coverage with:
    • $2 million third party liability coverage limit
    • Smoke-free discount
    • $50,000 contents coverage for condo/apartment
    • Sewer backup, overland flood and groundwater coverage where available
  • All drivers licensed since they were 16
  • All drivers commute 10 km to work and drive 10,000 km a year
  • No multi-vehicle or multi-line discounts
  • All vehicles quoted with winter tires
  • Full auto coverage with:
    • $1 million third party liability coverage limit
    • No deductible for not-at-fault claims
    • Accident forgiveness (where available)
    • Waiver of depreciation (where available)
    • $1,500 coverage for rental car
    • $50,000 coverage for damage to rented or borrowed vehicle
    • Family protection endorsement (extra medical benefits if you’re injured by an uninsured or underinsured driver)

Based on the above quotes:

  • You can save close to 20% on your home, condo or renters premiums by going from the minimum deductible to the maximum deductible.
  • You can save 9 or 10% by increasing your home, condo or renters insurance deductible from $500 to $1,000.
  • You can save 5-10% on your auto insurance premiums by going from the minimum deductible to the maximum deductible.
  • You can save 2 or 3% by increasing your auto insurance deductible from $500 to $1,000.

When do I have to pay a deductible?

If you have to make a claim on your home insurance policy, you will always pay a deductible.

  • If a contractor is brought in to fix damage to your home, or to rebuild it, you may be required to pay the deductible directly to the contractor.
  • If you are making a claim for something that was stolen, the insurance company may just deduct $500 or $1,000 etc. from your claim cheque.
  • Many insurance companies have higher deductibles for water claims. So your main deductible may be $1,000, but you may have to pay a $2,500 deductible if it’s for water damage. Ask your broker to be sure.

Deductibles work similarly for auto insurance claims. The exception is that there is no deductible to get your car fixed if the damage is related to an accident for which you are NOT AT FAULT.

  • If you are AT FAULT for an accident, you will pay a deductible to get your car fixed, usually directly to the shop that is doing the work.
  • If your car is damaged by an act of vandalism, or by a natural occurrence like a falling tree or tornado, you will pay the deductible, usually directly to the shop.
  • If your car is stolen or damaged beyond repair (write-off), the insurance company will subtract the amount of the deductible from your claims cheque.

Making small claims – home insurance

Let’s go back to that case of the stolen golf clubs. But let’s say that they were worth $1,500 instead of $900. Even though you could be reimbursed $500, the fact is that it would count as a claim on your home insurance record. Here’s the most important thing to consider: In home insurance, it doesn’t matter whether the loss was your fault or how much the claim is for. Each claim you make is just a claim on your record. Having one claim on your record doesn’t make a big difference in the premium you’ll pay on renewal. However, that all changes if you have to make a second claim within a five-year period. Two claims in five years disqualifies you from many of the standard insurers. This means your annual premium could double or triple on renewal, and stay that high until the claims are five years old.

So if you’re thinking about making a claim for less than $5,000, you always have to consider:

  • How much you’ll actually collect after your deductible
  • Whether you already have another claim in the last five years
  • Even if you don’t have another claim on your record, whether you want to waste your one “free” claim (within a five-year period) just to get a few hundred dollars

Making small claims – auto insurance

Auto insurance is a completely different story. If a claim is not related to an accident (your car was stolen or a tree fell on it), it shouldn’t affect your premium on renewal, so you can go ahead and make a small claim, even if it’s a $1,300 windshield replacement and you have a $1,000 deductible.

If the claim is related to an accident, however:

  • If you are not at fault, making a claim should not affect your premium, so go ahead.
  • If you hit a deer or other animal on the road, that’s considered a comprehensive claim (no fault), so again, you can go ahead and claim.
  • If you are at fault, and police attended the scene, you exchanged insurance information with the other driver, or you reported the accident at a collision reporting centre, then you can assume that the at-fault accident will go on your record regardless, so you may as well make a claim. It’s not the claim that hurts your record in this case. It’s the at-fault accident.

The last possibility is that you are involved in a single vehicle accident. That means you hit a guardrail, a tree, a post or some other object (not a person). By law, even if it happens in the middle of nowhere in the middle of the night, you should go and report this accident at a collision reporting centre, and because there is no other driver, you are automatically at fault.

In this case, if you’re going to report the accident, you may as well claim your damage. The effect on your premium will be the same. If you’re not sure, here are a few things to consider:

  • Are you OK with breaking the law by not reporting? There are ways you could be found out later.
  • How much damage is there, and what is your deductible? How much are you saving by claiming?
  • Do you have claims forgiveness (or accident forgiveness)?
  • Even if you have claims forgiveness, do you want to waste your one “free” claim, again, just to get a few hundred dollars?

Other types of deductibles

There are other deductibles that apply for different types of insurance, and different types of claims.

Health benefit claims

If you have extended health benefits through your employer or membership in another group, it’s very possible you have an annual deductible. So, for example, you may have drug benefits, but you might have to pay the first $25 or $50 out of pocket for the year. Some plans have a $100 annual deductible that applies to your whole family, and any costs beyond that will be covered by the plan.

Disability benefit claims

Just like with EI benefits, if you claim long or short-term disability through your workplace benefits plan, there is usually a waiting period before you can start collecting benefits. It’s typically five days for short-term disability, and 120 days for long-term disability. This waiting period is essentially the same thing as a deductible, in that it discourages smaller claims.

Auto insurance pain and suffering claims

In Ontario, if you are injured by an at-fault driver in a car accident and choose to sue them for your pain and suffering, any award you receive is subject to a $40,000 deductible. The deductible won’t apply to any actual financial losses you sustain (medical bills, loss of income, damage to your property, etc.), but only to claims specifically for pain and suffering. So if a jury decides that you deserve $38,000 for your pain and suffering, you won’t receive a cent. This is a measure to discourage frivolous lawsuits and keep costs down in the auto insurance system.

We’ve got all the deductibles

Modifying your deductible can be a good way to make sure you have the right mix of coverage and price. Practically speaking, if you choose a higher deductible, you have less coverage, but you’ll also pay a lower premium. When you talk to one of our experienced brokers, they’ll walk you through the options and make sure you have the right deductible for your circumstances. Give us a call!

1 Quotes reflect CAA Insurance’s minimum deductibles, $500 for collision and $300 for comprehensive. Most insurers have maximum and minimum deductibles.

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