Skip to main content
Insurance

Deductibles

By February 28, 2009 May 7th, 2019 No Comments

Most of us understand that we have a deductible on our insurance policy. But why?

Deductibles are the part of the claim that is YOUR responsibility. It is the amount you specify that you are willing to share in the cost of the loss.

Deductibles and premium have an inverse relationship. The higher the deductible, the lower the premium. The lower the deductible, the higher the premium.

Your willingness to share in the loss is reflected in the amount the insurer charges you for the coverage.

Because insurance is there for the catastrophic, not the little stuff, it makes sense to select a deductible as high as is comfortable for you.

Don’t pick one that is too high. If you do, you may be financially strapped when you have your loss. Know what you can afford to pay should you have a significant claim.

Let’s say your homeowner’s deductible is $500/per occurrence. You need to be sure you have that $500 available so that you can afford to contribute your portion when the tornado blows your roof off. If you normally have $250 in the bank, the $500 deductible may not be for you. However, if you have $10,000 in the bank, maybe the $500 deductible could be raised to $1,000.

Statistically, most folks might have a claim every 17 years or so…if that’s the case, and you end up saving $100 per year on insurance by taking the higher deductible…you would have $1,700 saved up (and earning interest) for all those years and only paying $500 more than the original $500 on your claim.

Deductibles are one of the simplest ways to “tweak” your premium. However, talk with your agent about the type of policy you have and how it impacts you on the pricing side.

It’s a discussion that has to be customized for your comfort level on absorbing risk. But it’s an often overlooked portion of your policy that can provide a great cost savings if you consider it!