High Deductibles or Low Deductibles?

June 03, 2015

Often times in the process of selling and servicing home and auto policies we find ourselves in a conversation about deductibles. The customer initially thinks a lower deductible would be the best choice so that when a claim occurs they have limited out-of-pocket expense. However, when we explain the premium savings related to having higher deductibles many times the customer opts for a higher deductible. Carrying higher deductibles on your home and auto policies can shave off hundreds of dollars in premium over the long run.

Things to Consider When Choosing a Deductible

Besides premium savings, when you choose a deductible you must keep in mind that you are choosing your out-of-pocket cost in the event of a claim. It is never our recommendation for an insured to choose a deductible that they could not afford if they experience a covered loss. While higher deductibles have advantages, we always make recommendations that best-suit each individual insured’s financial situation.

This is sometimes a new concept for people to understand but insurance should not be looked at as a maintenance policy but rather coverage for risks that you cannot pay for yourself. For me, and keep in mind I am an agent so I am tainted, I would likely not seek coverage for a $1,500 water damage claim. I would, however, seek coverage if the 50 year old cottonwood tree near my house falls on my roof in a wind storm. It’s also good to point out that insurance companies do not look at a risks favorably that have claims frequently. If you repeatedly submit smaller claims, such as the $1,500 water claim, it’s likely you will receive a cancellation notice from your insurance carrier. This is something all of us try to avoid and choosing higher deductible can set you on the right track.

How Much Money Do You Save With Higher Deductibles?

That is a good question but hard to answer for a general audience. Since insurance rates use multiple factors to establish rates, my best recommendation is to ask your agent. Any insurance agent can tell you what your premium savings with higher deductibles would be with the click of a few buttons on their computer. If you are considering higher deductibles, I would recommend looking at both your auto and your home policies for savings. The most recent example that I heard was a client moving to a $2,500 home deductible and they saved about $300 per year.

In closing, as you consider what deductible is right for you and perhaps raise your deductibles to save premium, one thing to consider is what to do with the saved premium. A new pair of shoes? A big screen TV? A nice dinner with your favorite insurance agent? Many times our insureds reinvest the premium savings into other areas of their insurance package that they may have been skimping on previously. We often have insureds increasing liability limits, insuring jewelry or purchasing an umbrella policy with the premium saved by having higher deductibles.

At your next account review with your agent, ask about increased deductibles. If you don’t have regular account reviews with your current agent, you should. Annual reviews are an agency standard here at Knapp Tedesco and we always welcome new customers. Call us today!