Managing Your Insurance Deductible

Deductible v Premiums – The Dilemma

The purpose of insurance is to shift the risk of loss to an insurance company in exchange for a policy premium. Most policies have a deductible, which is the initial an amount the insured pays out of pocket before the insurance starts covering the cost of the loss.

Higher Deductible Means Lower Premiums

In the process of managing the cost of insurance premiums, policy holders often consider adjusting their deductibles.

  • Lower deductibles mean less money out of pocket if a loss occurs, but obviously results in higher premiums.
  • Higher deductibles result in lower premiums, but require that the insured bear a larger amount of the first part of the loss.

What is Your “Risk” Comfort Zone?

A small fire in a $300,000 home that results in $2,500 of damage might not be covered because it is less than a 1% deductible. If the homeowner can afford to handle the cost of repairs in exchange for cheaper premiums, it might be worth it. On the other hand, if that loss would be difficult for the homeowner, a change in the deductible could be considered.

Make Sure You Are Up-to-Date

It is a good idea to review your deductible with your property insurance agent so that you’re familiar with the amount and make any changes that would be appropriate. It’s also a good idea to re-evaluate the value of your home to be sure you have adequate coverage in the event of a loss. We can help you with that. Just let us know.

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