What Deductible Should I Have With My Home Or Auto Insurance?
This is a question we are asked daily. As an agent we will have recommendations, however, you (the customer) must make the final decision as to the dollar amount you’re willing to pay out of pocket in a covered claim. It comes down to your personal preference and should not be set by the agent or insurance company.
Let’s start with the definition of a deductible – The amount you pay for a covered insurance claim before your insurance policy starts to pay. An example is with a $1,000 deductible, you pay the first $1,000 of a covered insurance claim. The insurance carrier pays the remainder up to the policy limits.
The main purpose of insurance is that it’s designed to transfer financial risks. Risks that if they occur you cannot financially afford. This means your deductible should be designed based on what you can financially afford to lose. Is it $100, $500, $1,500, $2,500, or more? It’s a personal choice.
We need to keep a few things in mind:
- Low Deductible = Higher Premium – If you choose a lower deductible you will pay more premium. The opposite occurs with a higher deductible, you typically have a lower premium.
- Claims – If you choose a lower deductible, chances are you will file a claim or multiple claims quicker than someone with a higher deductible. Potentially you file for small stuff you can afford. Keep in mind, claims have the potential to apply surcharges on insurance premiums, and impact insurability or potentially shopping for the best rates. This possibly means you can pay more for insurance in the long run.
- Determine your deductibles after you have chosen your coverages. – Make sure you have enough coverage first. Don’t short coverage to take a lower deductible (for example – $100 smaller deductible vs. $100,000 more coverage).
- Do you have a mortgage/loan or lease? – If you do, your loan or lease will have maximum deductible limits you can choose based on your contract.
As an agent, my insurance thought process is different than my customers. I deal with it daily and have seen various claims and how they impact my customers. As a result, my recommendations tend to maximize coverage and choose a higher deductible you can afford. I would rather my customers lose $100 on a deductible than potentially $100,000 in a liability claim.
*Tip: Start a “deductible savings account.” Automatically deposit $25, $50, or more per month into a savings-type account. Take a slightly higher deductible and save on your insurance premium. By doing this you accomplish two things: 1. Save money on your insurance and 2. Save money in an account (everybody says they should save more money). Should a claim occur, you have access to some emergency funds in that account just in case.
Held Insurance Agency is a Trusted Choice Independent Insurance Agency. Located in Mount Prospect, IL, and services all of Illinois and Wisconsin. We can help you evaluate what policy fits your needs. Contact us to learn more or request a quote.
