How to Choose Insurance Deductibles

How much should my insurance deductibles be?

You’ve all heard the question asked before, and maybe you’ve even asked it yourselves.  It’s a rather straightforward question, but there is no one right answer.  Everyone has a different financial situation and as such should look at their individual situations to decide how much to set deductibles at.  However there are several steps that can be followed, based on the idea of maximizing savings and minimizing risk.

Step One: Minimize Risk

How much risk are you able to handle?  By increasing your insurance deductibles you are effectively creating more risk for yourself.  If you were to be involved in some form of accident or insurance claim you would be responsible for covering the first $xxx dollars of the claim – this is your deductible.  For example, if I were to be in an accident and file a claim with the insurance company for $850 dollars to repair my bumper they would fix it, but only after I pay the deductible.  So if my deductible was $1,000 dollars then I would have to pay the entire amount to fix my vehicle as it’s more than the cost of the actual repairs.  If my deductible were only $300 dollars then the insurance company would have spent $550 on the repairs while I would only be responsible for the $300 deductible.  Pretty simple right?  The matter of risk is directly related to the amount of cash that you are willing to put on the line.  To minimize risk you should decide exactly what that magic number is for you.

Step Two: Maximize Savings

There are a lot of ways to decrease your insurance premium.  Usually one of the better ways is to increase your deductible.  That’s why we’ve looked at the amount of risk we’re willing to take on.  If you can handle paying $1,000 down on repairs for your vehicle then you might want to change your deductibles to this level.  By doing so you might be able to save yourself hundreds of dollars per year on your insurance premium.

I’ve used some quotes from my insurance company to provide an example.  With $300 dollar deductibles on both comprehensive and collision coverage my six-month premium would be $800.78 but with a $1,000 dollar deductible on both comprehensive and collision coverage my six-month premium would be $674.36 – a difference of $126.42 every six months, or just over $250 dollars a year! That’s a decent savings, just by being willing to assume more risk myself.  If I could go claim free for four years (not impossible by any means) then I would save enough money to pay for one of the deductibles if anything were to happen.  Over the course of 50 years I could save over $12,000 dollars (possibly less, depending on how many claims I make over this period of time) just by increasing the amount of my deductible.

Saving Money On Insurance Is Not So Hard

If you haven’t reviewed your insurance plan for a while now’s the time.  It’s not that difficult to make some minor adjustments to your policy and save yourself hundreds of dollars a year.  So call up your agent or log onto your policy website and review your coverages.  Make sure that you’re not skimping on coverage, but also make sure that you’re getting the savings that you deserve.  Now that you know more about deductibles and the associated risk you might just be comfortable increasing that deductible to $1,000.  Think about it, choose your risk and let the savings begin!

2 responses to “How to Choose Insurance Deductibles”

  1. Man,
    3 weeks ago I raised my deductable on my autos from 250 to 500 to save a bit of cash, and sure enough, I had my spare tire and rim stolen off the back of my H2 last Saturday. $3200 claim (first in many years) Bad timing, ya know.

Leave a Reply

Your email address will not be published. Required fields are marked *