Need clarification on what an insurance deductible is and how it works? A deductible is one of the most misinterpreted insurance terms. It's something that most people know about, but many don't fully understand how it affects their rates and what it means for them if they file a claim. Read on to learn what you need to know about insurance deductibles.
 
What is an insurance deductible?
An insurance deductible is the amount of money you'll be required to pay for an insured loss. When you experience a loss, a deductible is subtracted from what your insurer pays. This deduction is how risk is divided between insurers and policyholders. It can either be a specific amount of money or a percentage. All this information is outlined in your policies.
 
Do I have to pay an insurance deductible every time I make a claim?
You don't always pay a deductible – you only pay one when you file a claim that carries a deductible. For example, your auto insurance will outline the deductible amount you must pay for an at-fault accident, theft, or vandalism. Concerning your home, if you file a claim for damages or if it’s completely unlivable, you'll likely pay a deductible. Deductibles may be waived in some situations when the claim is covered under third-party liability. Picture this: you’re backing out of your friend’s driveway and accidentally run over their kid’s expensive bike, or you’re pruning a tree in your yard, and a large branch accidentally falls on your neighbour or their vehicle.
 
Types of auto insurance deductibles
Different types of deductibles usually take effect when you opt for additional optional coverages on your policy. Your insurance company may offer deductibles for¹:

• Collision

• Comprehensive

• All Perils

• Specified Perils

Depending on your province, you may also have a deductible on one or more compulsory coverages, such as Direct Compensation Property Damage, where you may need to pay a deductible even if you're not at fault in an accident. Generally, you'll be able to choose a deductible that works best for you, assuming you'll pay that amount in the event of a claim.
 
Types of home insurance deductibles
Your policy may include additional optional coverage for specific causes of loss. Common add-ons include:

• Sewer Back-Up/Water Endorsement

• Overland Water Protection

These additional optional coverages commonly have higher deductibles. There are also some home policy types where no deductible applies. However, coverage limits exist, so if your claim exceeds your coverage limit, you'll have to pay the balance out of pocket.
 
Will I save money if I increase my insurance deductible?
Most often, if you increase your insurance deductible, you will save money on your policy. It does depend on your circumstances and policy details, though. Recognize that if you increase your deductible, you'll be responsible for paying it if you file a claim. You may spend more once the claim rolls around.
 
A higher deductible can also negatively affect you if you file a minor claim. In some situations, you may be better off paying for damages out of pocket rather than filing a claim. For example, if you get into a car accident and your vehicle experiences $550 of damage, and your deductible is $500 – is it worth filing a claim to have your insurer pay the additional $50? Remember that regardless of the value, you're responsible for paying the deductible when you file a claim. Since filing could increase your payments upon renewal, paying for the damage yourself may be better.
 
What's a disappearing deductible?
A disappearing deductible is an endorsement that can be added to your coverage to decrease your costs. Each year you don't file a claim, your payment will be reduced by 20%. Ideally, after five years, you won't have a fee to pay unless you submit a claim. Each insurer that offers a disappearing deductible has a different way of administering its program. Some offer a fixed discount, while others use a percentage.
 
Why is my insurance deductible so high?
When renewing your policies, you may be notified that your insurance deductibles will increase. Why is that? It's most likely a result of filing too many claims. Small claims here and there can add up and affect your costs. If you are in this situation, it's important to speak with an insurance professional, such as an OTIP broker and compare your options to ensure you get the coverage and deductible that meets your needs.
 
If you're a current OTIP policyholder, contact us at 1-833-615-9329 to review your existing home and auto policies and discuss coverage options. If you're not insured with OTIP and shopping for home and auto insurance, call us at 1-833-494-0085.
 

1. Financial Services Regulatory Authority of Ontario – What determines your auto insurance rate