Stop Overpaying on Your Deductible
Renters, Health, Homeowners, and Car insurance. What do all of these have in common? A lot actually, but the topic for today is deductibles. They all have deductibles. What is a deductible though, and how do you choose the right one? In an insurance policy, the “deductible” is the amount that must be paid out of pocket (by the policy holder) before an insurance provider will pay any expenses.
So how do you know which level of deductible is best for you? (Ignoring health insurance, as it is much more complicated) choosing the right deductible comes down to three simple, yet imperative questions. First, how much is the price difference between the coverages for the different deductibles. Second, how often do/will you file a claim? Third, how much do you have in savings?
How different is the price between the policies with different deductibles? To answer this, you will need to have your agent run the numbers for you. You may be astonished at the difference in prices. The difference could be as little as $10/month, as much as $100/m or it could be more! The important thing to determine is how much money could you save each month? Keep that number in the back of your head for a minute as we go through the other 2 questions.
The next question is, how often have you filed in the past, and how often will you file a claim? Is it homeowner’s insurance that you have never filed a claim in your life? Is it an automobile policy, and you have a teenage driver who has wrecked three times in the past year? It is important to use realistic numbers, not optimistic ones. The important thing you need to determine is how often will you be paying your deductible?
The last question is, how much do you have in savings? How high of a deductible can you afford to pay? Do you have no savings, and will be financially crippled if you must pay a $1,000 deductible? What happens if you must pay it twice? Do you have large savings and can comfortably pay the deductible with no stress? This is important, but also you should realize that the savings you can get can help you build this up.
Once you know those three things, it is then a balancing act. For example, in car insurance again, if you can save $60 bucks a month by going from a $500 deductible, to a $1,000 deductible, knowing that you have $3,000 in savings and haven’t used it in over 5 years. You could have saved (60*12*5) $3,600. Now you can pay your deductible 3 times over. Even if you don’t have any savings, you could have enough to pay the difference in deductibles in under a year. On the flipside, let’s assume you are in the same situation but you have high risk drivers and use your insurance regularly 1-2 times a year. That $60 you save each month is not making up for the amount you are having to pay in deductibles, so it does not make sense.
Like most matters in life, there is no “one size fits all” best solution for everyone. Everyone’s situation is different, and the right deductible you need for your family will be different from the one your neighbor across the street needs. For help choosing the right deductible for you and your family, give me a call today.