Insurance forms the “safety net” of each of our personal financial plans. We buy life insurance in order to financially provide for our families when we die, we buy health insurance so that we don’t have to pay the full cost of health care if we’re sick or injured, we insure our homes against, and we buy car insurance coverage above the legally required minimum in order to protect the value of our automobiles in case of an accident.
All of this insurance coverage can be quite expensive. While it’s almost always a bad idea to simply forego coverage in an effort to save money, you may want to consider whether you can save by raising your deductibles on certain insurance policies.
Here are some things to take into consideration if you want to raise your insurance deductible amount.
Deductibles Overview. A deductible is the amount that you must pay out of your own pocket in order to cover an insured loss, before your insurance company will pay any benefits. In general, for two policies that are identical except for the deductible amounts, the policy with the higher deductible will charge a lower premium.
Consider Other Costs and Fees. Your deductible is not the only out of pocket category of expense that you’re responsible for in the insurance context. For example, your health insurance coverage may involve fees for each visit to the doctor’s office, and various types of fees for prescription medications. Sometimes these fees, or the co-pay amounts that you’re responsible for in connection with other expenses, will change when you move to an insurance policy with a higher deductible. Make sure to take them into consideration when you’re calculating your net savings.
Do You Have an Adequate Emergency Fund? If you raise your deductible and then experience a covered loss, you should be confident that you’ll be able to make any necessary payments up to the higher deductible amount. Often times this cash will come from an individual’s “emergency fund,” which is intended to cover just this type of extraordinary expense.
Look at Overall Coverage. Sometimes taking a look at the deductible levels of your various insurance policies will give you occasion to also look at the scope of your coverage. Your needs change over time, and your insurance coverage should follow suit. For example, as your automobile gets older you probably don’t need to protect against the same amount of financial loss, because the car likely becomes worth less each year. On the other hand, if the value of your home increases you’ll want to make sure that your insurance coverages rise accordingly.
Don’t Assume the Worst Won’t Happen. Finally, while we buy insurance hoping we’ll never have to use it, it’s a bad idea to assume that we never will – and therefore underinsure or choose a deductible that’s far too high for our circumstances. A single accident or severe weather event could cost you years of hard work and savings if you need to cover a much larger deductible amount.
Raising your deductible can be a great way to save on your insurance costs, but raising it too much can end up costing you much more than you save on your premiums.
Insurance forms the “safety net” of each of our personal financial plans. We buy life insurance in order to financially provide for our families when we die, we buy health insurance so that we don’t have to pay the full cost of health care if we’re sick or injured, we insure our homes against, and we buy car insurance coverage above the legally required minimum in order to protect the value of our automobiles in case of an accident.