Absorbing the deductible? Example would be a theft claim.

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PostPosted: Wed May 12, 2010 7:53 pm   Post subject: Absorbing the deductible? Example would be a theft claim.  

Theft of $15k of jewelry stolen that was not scheduled. Theft limit is $1500. Deductible is $1k. After the deductible is taken from total loss ($14k) it still exceeds the policy limit ($1500) so the deductible is absorbed in the loss. Payment would be $1500.


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PostPosted: Thu May 13, 2010 1:52 am   Post subject:   

Most insurers would apply the deductible as you stated.



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PostPosted: Fri May 14, 2010 12:09 pm   Post subject:   

I'd rather believe that it's wise to select a theft limit on the basis of your total worth of jewelry in store. If you haven't done that (with a view to save a few bucks), you could be on the losing end.


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PostPosted: Fri May 14, 2010 4:05 pm   Post subject:   

Math is done like this:



Amount of loss

- deductible

---------------

= amount considered and then the policy limit is applied



In this situation is would be as follows:



$15,00 loss

-$1,000 deductible

------------------------

=$14,000 considered payable



But the $1500 limit means only $1500 is paid on this loss. After we know the amount paid by the insurance it easier to see that the deductible is "absorbed" into the loss.



The other way I remember this is to remember that in some situation the policy limit needs to be paid. If the deductible is taken away from the policy limit... then the limit would never be paid. That does not make sense... you are paying for $1500 in coverage when no more then $500 will be paid? Again, I just use this as a simple reminder of how the deductible can be "absorbed" into the loss.

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PostPosted: Sat May 15, 2010 7:04 pm   Post subject:   

Quote:
If the deductible is taken away from the policy limit... then the limit would never be paid. That does not make sense... you are paying for $1500 in coverage when no more then $500 will be paid?




Excellent explanation. Should be easy for anyone to understand that the deductible is taken away from the loss before the policy benefit is applied. Work the same way in auto and medical insurance, too.


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PostPosted: Tue May 18, 2010 2:30 pm   Post subject: Absorbing ded.  

So what if somebody had $600. in cash/coin stolen, the policy limit is $200.00. The deductible is $500.00. What do you pay the insured? Or $1100.00 in jewelry, which is below the $1500.00 policy limit, and a $500.00 deductible. Thanks for your help!


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PostPosted: Tue May 18, 2010 2:48 pm   Post subject:   

Quote:
So what if somebody had $600. in cash/coin stolen, the policy limit is $200.00. The deductible is $500.00. What do you pay the insured? Or $1100.00 in jewelry, which is below the $1500.00 policy limit, and a $500.00 deductible.




$600 (loss) - $500 (deductible) = $100 claim paid 100%



$1100 (loss) - $500 (deductible) = $600 claim paid 100%



$600 coin loss + $1100 jewelry loss (in the same event) = $1700 (total combined loss) - $500 (deductible) - $400 (excess coin loss) = $800 claim paid 100%



Moral of the story . . . leave a note in the coin collection: "The jewelry is in my wife's underwear drawer, back left corner, under the bras. Be sure to take it all before you leave -- it's worth $1100, because the coins are only worth $600 and I have a $500 deductible."



"And if you have the time, take the kid in the third bedroom on the right, too. He's worthless, but I'd really appreciate it."


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