3 Tips for choosing a higher or lower dedudctable
Knowing the difference between a high and low deductible for your home and auto policies and choosing whichever one suits your situation is crucial. In the end, your deductible is the amount you have to pay out of pocket before your insurance company is obligated to pay anything. Hopefully at the end of this, you will have a better idea of how deductibles work and whether a higher or lower one works better for you.
The easiest and most basic rule of thumb is the higher your deductible is, the lower your insurance premium will be. Every insurance company has different deductible amounts to choose from but generally speaking, deductibles can be as low $100 and $2,500 being the highest deductible. There are different factors you should consider when choosing a deductible such as your current financial state, your risk exposure/tolerance, and whether you owe money on your car among others.
Here are a few helpful bits of information to make the right decision:
- Select a deductible amount that you can absolutely afford. Think about it this way; if something were to happen to your home or if you crashed your car tomorrow, would you actually be able to pay a $1,500 deductible out of pocket? Again, the insurance company will not start paying for the loss until the deductible is met.
- How much risk are you really willing to take? If it worries you on a daily basis about how you would pay a $1,000 deductible if you were in an accident, then a higher deductible is probably not for you. Likewise, if you have a separate savings account used for emergency funds and you have a high tolerance for risk, then perhaps a higher deductible is the right choice for you.
- Look at how the deductible affects the actual premium of your policies. Take a look at how much savings there really is by switching from a $1,000 deductible compared to a $500 deductible. Is it worth it to you to save on the premiums to essentially pay for the added risks?
Every person has different circumstances and financial situations so choosing the right deductible is truly a case by case scenario. Knowing exactly how deductibles work and most importantly, choosing whatever deductible you are comfortable with is the most important factor in deciding what to pay out of pocket.