Insurance Deductibles: Should You Choose High or Low?
What is the difference between having a high insurance deductible and having a low one? And which one is best for your situation?
To help answer your questions, here is an explanation of each plan and a breakdown of which may be right for you and your family.
Key Terms Glossary
Deductible: The amount of money you must pay upfront when you make an insurance claim, before the insurance kicks in and pays for covered expenses. This may be a fixed amount or a percentage of an insurance claim.
Coinsurance Clause: In the case of commercial property policies, if you have a coinsurance clause of 80%, you must carry a limit of insurance of at least 80% of the replacement cost at the time of loss, to avoid the “coinsurance penalty.”
Premium: The monthly price you pay to have insurance. This is required whether or not you use your insurance.
High Deductibles Explained
The main benefit of high-deductible insurance plans is that they give you lower monthly premiums, sometimes by as much as 20%. However, you must reach your high deductible amount before the rest of your claim payout amount will be covered by your insurer.
High deductible plan holders see the value in saving monthly. A smart option is to put that savings to work for you in an interest-accruing account to be used in an emergency.
Low Deductibles Explained
Low-deductible insurance plans offer much lower limits that need to be reached before your insurance kicks in. However, this plan requires much higher monthly premiums. In addition, consider the fact that you will be out that cost every month whether you use your insurance or not. But even so, this option generally saves you money in the long run.
Low deductible plan holders often enjoy the predictability of knowing what their insurance costs are no matter what expenses they incur. They may also enjoy the peace of mind knowing they will never be caught off guard financially by an unforeseen accident, fire, or liability.
Which Deductible Is Best for You?
You may want to choose a high-deductible insurance plan if you and your family members:
- Have a safe driving history
- Live a relatively safe lifestyle
- Can afford to pay your deductible up front or within 30 days of filing a claim
- Could benefit from putting money in savings for a rainy day
You may want to choose a low-deductible insurance plan if you or your family members:
- Are teenage drivers or drivers older than 65
- Own a motorcycle, boat, or RV
- Already have an emergency savings account
Keep in mind, you may not always save a lot of money on your insurance premiums simply by choosing a high-deductible plan. For example, since home and auto insurance don’t cost a lot of money anyway, a higher deductible may only save you between $25 and $85 annually.
Completing some basic calculations before you decide which option is best for you can be a very insightful exercise and helpful in making a well-thought-out decision for the coming year.
For more information on choosing the right insurance deductible for you, contact Taylor-Moore Agency today!