This post explores the pros and cons of high versus low insurance deductibles, and facts about deductibles that consumers should consider when shopping for insurance.
The premium may seem the biggest cost factor in insurance policy shopping because it represents the bill due each month or quarter. But deductibles and premiums are inversely linked, and both count at the bank. Knowing whether a higher or lower deductible is better, and why, can be a bit complicated.
High or Low: Which Way to Go?
The immediate difference between a high deductible and a lower one is the premium; typically, the more the deductible, the less the monthly or quarterly bill. But depending on what and who is covered, the savings may be negligible. Mature drivers with good records who opt to raise their deductibles are likely to save very little—and hundreds less than a comparable younger driver. The difference is also likely small for home insurance—plus most insurers no longer underwrite policies with deductibles under $1,000. For many insurance consumers today, the question is simple: Can I honestly afford the payout? If so, go high; if not, go low.
One potential way to save is with different deductibles for comprehensive versus collision coverage on auto insurance. If the car is older, then collision may no longer be worth the expense. Another calculus to consider is when the savings on insurance premiums can be recouped. If it will take three years or longer for the amount saved annually to equal the difference in higher premium when a claim is filed, then the risk is greater than the reward. In fact, paying a lower premium with few to no claims can potentially save more money in the long term.
Consider Your Financial Stability
For others, the formula for choosing the right deductible boils down to financial discipline and willingness to pay. If the individual is struggling to build or maintain a healthy emergency fund, then it might not be worth the risk to be underinsured. After all, while the idea of saving on premiums may look good on paper, even some people with comfortable nest eggs aren’t always ready to crack them. However, it is worth noting that those with reserve funds in the bank are more risk tolerant than those without, and may choose a lower premium for that reason.
The best way to determine the right deductible is to consult a trusted insurance professional who knows the state’s laws and its insurance market. Darryl Murphy Insurance is just such an agency. Call us at 225-698-6789 to get a free quote on auto, home, or flood insurance tailored to fit your needs and budget.