What Are They And How Do They Work?

Are you familiar with these amounts as it pertains to your vehicle insurance coverage? It’s important to know what your premium, deductible amount and limits are in order to gain better clarity of your coverage benefits.

Your insurance premium refers to the periodic payment made on an insurance policy for the cover given. A common example of insurance premium comes from auto insurance. A vehicle owner can insure the value of his or her vehicle against loss resulting from accident, theft and other perils. The owner usually pays a fixed premium amount in exchange for the insurance company’s guarantee to cover losses incurred under the scope of the agreement. Depending on your plan or insurer you will pay this amount over several months or in larger amounts over a period of two or three months.

The amount that you pay in premium can depend on a variety of things, such as your age, driving records, the make and year of the vehicle and the type of insurance coverage such as comprehensive coverage versus third party/liability insurance.

Your vehicle insurance limit refers to the maximum amount of money your insurance will pay out if you make a claim. For example, if the limit on your collision coverage is $20,000 but your accident costs $23,000, you will be responsible for $3,000 since the most that your policy would pay out for damages to your vehicle would be $20,000 after your collision.

Knowing what your car insurance limit is in understanding your coverage benefits is very important.

Lastly, the term deductible also referred to as an “excess” or “policy excess”, is the amount the insured must bear before the insurer is liable to pay. In other words, it is the amount you’ll pay out of pocket for a claim before your insurance coverage kicks in. If the claim is below the deductible, no amount is payable by the insurer.

Let’s say your deductible is $1,000.  You’ll need to pay that first thousand before your insurance begins covering the remainder of the cost of accident, up to your limit.

So for example, your collision coverage under your car insurance policy has a deductible of $500.00, a limit of $6,000 but the damages arising out of the accident amount to $7,000, the owner will bear the first $500 and the insurer will cover the other $5,500. For damages worth $500 or less, the insurer would not contribute to the repair costs. Deductibles can vary between policies and insurers.

When you apply for insurance coverage, always take some time to read your policy booklet and schedule and to make sure that you are familiar with these amounts. If you are still not clear, contact us, our agent or your broker to get a better understanding prior to and in the event that you need to submit a claim.

Source: How Do Car Insurance Premiums, Deductibles and Limits Work? https://www.allstate.com/tools-and-resources/car-insurance/ask-agent-premium-deductible-limit.aspx