What is the purpose of having an insurance deductible?

The purpose of having an insurance deductible primarily relates to incentivizing homeowners to minimize risks. A deductible is the amount a policyholder must pay out of pocket before the insurance coverage kicks in for a claim. This mechanism encourages homeowners to be more cautious and take preventative measures to reduce the likelihood of claims. By having a financial stake in smaller incidents, homeowners are often more motivated to mitigate damages, engage in regular home maintenance, and avoid frequent claims that could lead to higher premiums or policy cancellation.

A deductible also plays a role in the stewardship of the insurance policy, promoting responsible behavior among policyholders. For example, if homeowners know they will need to pay a certain amount before insurance covers damages, they may be less likely to file claims for minor issues, reserving insurance for more significant and genuinely urgent matters. This helps keep insurance premiums lower in the long run for policyholders who are proactive in managing risks.

While reducing the overall policy premium is a secondary benefit of having a deductible, the primary focus is on risk management. Claims management can be simplified through deductibles, but this is not their main intended purpose. Additionally, deductibles do not provide coverage for every single claim made, as there are limits and exclusions outlined in the policy.