A deductible is a predetermined amount that you must pay before your insurance company starts to cover costs.
The Basics
Example: If you are in an accident totaling $2,000, and you have a $500 deductible, you pay $500 and insurance covers the other $1,500.
Factors to Consider
When Choosing an Insurance Deductible
Higher Deductible=Lower PremiumsA better option if you have savings to cover a deductible in an emergency
Your Finances
1a
Lower Deductible=Higher PremiumsA better option if you prefer to minimize unexpected expenses
Your Finances
1b
2
Frequency of Claims
If you live in a high risk area prone to things like floods or car theft, a lower deductible may save you money long term.
For example, health insurance policies often have higher deductibles combined with lower premiums, which can be beneficial if you are generally healthy
Policy Type
3
4
Legal & Loan Requirements
Laws or lenders will often dictate the maximum deductibles, particularly for home/auto insurance. Review requirements before making your decision.
5
Assess Your Budget
Can you afford to pay a high deductible out of pocket in the event of a claim? If not, a lower deductible with higher premiums might be more suitable.
6
Consult an Agent
An insurance agent can provide personalized advice based on your individual circumstances and help you weigh the pros and cons of different deductible options.
Some insurance carriers offer a diminishing deductible. Example: your auto insurance deductible can be reduced for each consecutive claims-free policy year. Like Magic!
By carefully evaluating your financial situation, risk tolerance, and the specifics of your policy, you can make an informed decision that balances lower premiums with manageable out-of-pocket costs.