THURSDAY, JULY 11, 2013
First of all, "What is a deductible?" Basically, it is that part of a loss you are willing to pay. For instance, if your car is damaged in a hail storm, you would pay your "deductible" and the insurance company would pay for the repairs to your car over the deductible and up to the value of the car. So if you carry a $500 deductible with an $3,000 claim--you pay $500 and your insurance company pays $2,500.
There are two considerations when choosing your deductibles, 1. How much of a loss are you willing to afford? and 2. How much premium will you be saving?
I frequently hear financial advisors say, "Carry high deductibles to save money." That has some merit. The rule is: "The higher the deductible, the lower the premium." However, you should ask yourself those two questions. If going from a $250 deductible to a $500 deductible saves you $50 to $75 every six months, that is an annual savings of $100 to $150. Based upon the $100 savings it would take you 2 1//2 years with out a loss to break even. After that you are saving money every policy renewal. Are you comfort able with that?
If that same increase in deductible saves you $35 every six month--do the math and ask yourself if you can live with that? Are you willing to take the risk?
I know one person who purchases a brand new car and does not carry any physical damage protection (Comprehensive and Collision). He either believes he will not have a loss or is willing to absorb the thousands of dollars it costs for the new car. On the other hand there are people who carry lower deductibles, even on older cars, because it is easier for them to afford the extra cost of lower deductibles than pay a high deductible if there is a loss.
How much deductible should you carry? Follow these guidelines to your own comfort level.