by Datesh 
When it comes to insurance, one of the terms that you may have heard is “deductible.” It is an important concept to understand because it can affect how much you pay for your insurance premiums and how much you would have to pay out of pocket in case of a claim. In this article, we will discuss the role of deductibles in insurance, how they work, and how they affect your premiums.
What is a deductible?
A deductible is the amount of money you must pay out of pocket before your insurance coverage kicks in. For example, if you have a deductible of R5,000 on your homeowner’s insurance policy, and you file a claim for R20,000 in damages to your property, you will be responsible for paying the first R5,000, and your insurance company will cover the remaining R15,000.
How do deductibles work?
Deductibles can vary based on the type of insurance policy you have and the terms of your agreement with your insurance provider. Generally, the higher the deductible you choose, the lower your premiums will be. This is because you are taking on more of the risk, and your insurance company will be responsible for less.
For example, let’s say you have a homeowner’s insurance policy with a R1,000 deductible and a monthly premium of R500. If you increase your deductible to R2,500, your monthly premium may drop to R400. If you choose a higher deductible, such as R5,000 or R10,000, your monthly premium will be even lower.
Why do deductibles matter?
Deductibles play a significant role in insurance because they help to mitigate risk for insurance companies. When you choose a higher deductible, you are essentially telling your insurance company that you are willing to take on more of the risk yourself, which can result in lower premiums. However, this also means that you will be responsible for paying a larger amount out of pocket in case of a claim.
On the other hand, if you choose a lower deductible, your monthly premiums will be higher, but you will be responsible for a smaller amount out of pocket in case of a claim. This can be beneficial if you do not have a lot of savings or would struggle to come up with a large sum of money in case of an emergency.
In conclusion, deductibles are an important part of insurance coverage, and they can affect both the amount you pay in premiums and the amount you would have to pay out of pocket in case of a claim. It is important to choose a deductible that you can comfortably afford and that makes sense for your overall financial situation. If you are unsure which deductible to choose, speak with your insurance provider or a financial advisor to help you make an informed decision.
