How confident are you in your knowledge of your insurance policy and the deductible stated in it?  Confusion regarding deductibles can cause major problems for a homeowner/business owner/car owner/etc. in the event of an accident.

A deductible is the stated amount of money in your insurance policy that you have agreed to pay before your insurance company will pay the remainder of your claim.

For example, if you have a $500 deductible on your auto policy and you have an auto claim worth $2000 in damage to your car, you will end up paying $500 toward repair and your insurance company will pay the remaining $1500.  But if you have a $2500 deductible and the damage is worth $2000, the company will pay nothing because your deductible exceeds the damage done.

Higher deductibles should lower your insurance costs, and vice versa.  But with a higher deductible, you have to prepare to pay a larger sum out-of-pocket in the event of a claim.

So the question on everyone's mind is: Should I have a lower deductible with a higher payment or a higher deductible with a lower payment?  Think of it this way:

A hail storm passes through over the weekend and causes some serious damage to your home.  You chose to have a higher deductible of $5000 to save on your payments.  But the cost of repair is $4500. 

With any policy, you will always have to be prepared to pay, at the very least, your deductible- whether that's $500  or $5000.  In this case, your $5000 deductible would prevent you from receiving any help from your insurance company and you would have to pay the $4500 in repairs out of pocket.  If you can handle the chance that on any given day you'll have to pay up to $5000 toward a repair before insurance kicks in, then by all means, go with a higher deductible and save on your monthly payments. 

In the same way, being young and healthy with a beginner's salary, you might take the risk and opt for a higher deductible on your health policy so that you can have lower payments because you believe the odds are in your favor.

However, a point to consider is that while an insurance company may lower your premium if you take a higher deductible, how much are they offering?  Considering the average insurance client has a claim about every 3.5 years, is the credit worth it?  We encourage you to do the math.

Our aim is to keep you educated.  Know what your options are, what your lifestyle allows, and the practical likelihood of having to file a claim.

Whatever decision you make, talk to an insurance profession before doing so.  If you are interested in talking with us about your options for a new policy, request a quote





Posted by Melissa Caratachea

Posted 2:27 PM  View Comments

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