Deductibles differ for every type of insurance

By Susan Ladika Posted : 01/15/2014

Insurance categories written in markerIt's not always easy to deduct how the deductibles differ for your car insurance, homeowners insurance and health insurance policies.

While there are some similarities between auto and homeowners insurance, plenty of differences exist. And health insurance tends to follow a whole different set of rules.

Making it even more complicated, you'll find variations from insurance company to insurance company and from state to state.

How many deductibles you pay

One big difference is how many times you'll have to pay a deductible over the course of a year.

With auto insurance, you pay a deductible for each incident you're involved in -- and you'll sometimes have to pay more than one deductible for the same incident, says Penny Gusner, consumer analyst for CarInsurance.com.

So you might run your car into a mailbox and file a claim under the collision portion of your policy with a $500 deductible in the morning. Then if you crash your vehicle into a pole later in the day, you'd be paying another $500 deductible, she says.

It can get more complicated than that. If you're in an accident, you might have to pay different types of deductibles. That could mean you'd pay one deductible for collision coverage and another for personal injury protection.

Like auto insurance, with homeowners insurance you'll pay a deductible for every incident that happens during the year. And if you live in a coastal area you'll likely have a separate hurricane deductible.

Coverage for flood damage and earthquake damage are sold in separate policies.

With health insurance, unlike homeowners and auto insurance, you have only an annual deductible. Once you hit that threshold, you won't have to pay any more deductibles for the year.

What can be changed

Once you pick the deductible amount for your health insurance policy, it's set in stone for the year.

For automobile and homeowners insurance policies, you can change the deductible amount whenever you'd like.

If you're looking to save money on your auto or homeowners policy premiums, you may be inclined to choose higher deductibles. Having a higher deductible means you'll pay a lower premium. But that can be a double-edge sword. If something unexpected happens, you'll be paying more out of pocket to cover your repairs or costs.

"An important rule of thumb when choosing a deductible is: Never take a higher deductible than you can afford," says Lynne McChristian, spokeswoman for the Insurance Information Institute. "You do save money in insurance premiums with a higher deductible, but you're also taking on more risk on your own."

Getting a tax break

Unlike your other policies, with a high-deductible health insurance policy you can squirrel money away and get a tax break.

You may decide to have a health savings account (HSA) to accompany your high-deductible plan. The money you put into the account isn't subject to federal income tax, though there's a limit as to how much you can contribute each year.

For 2014, you're able to contribute $3,300 for an individual plan, or $6,550 for a family. If you're 55 or older, you can contribute an extra $1,000 for the year.

If you don't use it up, the money in the HSA can roll over from year to year. You can use the money to cover most medical-related expenses, but there are limits on purchasing over-the-counter medications.

Making it go away

On the other hand, you can make your car insurance premium dwindle or disappear if you have a safe driving record, though you may have to pay extra to take part in such programs.

Some auto insurance companies offer a vanishing or disappearing deductible, Gusner says. Each year you go without an accident, your deductible will decrease by a certain amount.

With Nationwide, for example, you'll get $100 off your deductible for each year you drive safely, up to a maximum of $500.

Determining insurance deductibles

Your auto insurance company will let you choose how high your deductibles will be within a certain range, and your choices may vary based on the type of coverage. So you could elect to have a $500 deductible for collision coverage and a $1,000 deductible for comprehensive coverage.

With health insurance, there's just one deductible, but you'll likely have to make co-payments for treatment and services. Those different types of services might require different amounts of co-payments.

In contrast, homeowners insurance has two methods of calculating deductibles. These can be either a set dollar amount or a percentage of the total amount of the insurance you have on your house.

So if your home sustains $10,000 worth of damage in a fire, and you have a $1,000 deductible, you'll pay the $1,000 out of pocket, and your insurance company will cover the rest.

If you live in a coastal state, you could have a separate deductible for hurricane and wind damage, which typically is calculated on a percentage basis, which could range from 1 percent to 10 percent of your home's insured value.

For each type of insurance, it's crucial that you read all the fine print of your policies and understand exactly how the deductibles work – before you have to pay them.

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