Deductibles should be a topic familiar to each of us who has insurance. On the surface, most people think the less they have to pay out of pocket, the better. But a low deductible isn’t always the best choice.
A deductible is the portion of your claim you pay yourself. As you increase your deductible, let’s say from $500 to $1000, your premiums decrease because you will be paying more for a potential loss out of your own pocket. That makes sense, right?
If you’re looking to save on your premiums, one of the best ways to do so is to raise your deductible. There are basically three concepts here that come together to make this happen. As deductibles increase:
- The insurance provider pays less of the loss, so it charges less premium.
- People likely don’t report claims with a dollar amount less than the deductible, so the company reduces expenses and charges less in premium.
- People are more careful to avoid dangers that could cause a claim to happen and force them to pay that deductible. Insurance providers recognize this and charge less premium.
So think about your personal situation. How much would you be willing to pay out of pocket if something happened and you needed to file a claim? Do you prefer more protection and a higher premium or a higher incentive for safety and some extra cash in your pocket? These should be the first questions you answer when you decide what’s right for you, and it’s best to let a professional help you.
Also, revisit this subject after any major life event or every five years. Let’s say you got that big promotion and you are earning more pay. You may decide to increase your deductible because you can handle paying more out of pocket if you have a claim. Or, you may decide that you can now afford more protection and want a lower deductible. And there is nothing wrong with deciding it’s fine how it is.
Hope this helps get you thinking. If you have questions or comments about deductibles, let me know by posting a comment.
Thanks for reading!
