Insurance 101: How To Choose The Right Deductible
Whether you are buying coverage for your home or apartment, the car you drive, or your health or life, insurance is all about risk. The insurance company is wagering that nothing will happen, and by purchasing coverage, you are effectively betting against them. And while you fervently hope that you will not crash your car and that a tree branch will not crash through your home, you rest a little easier knowing that you are covered.
The risk equation at the heart of the insurance marketplace means that the deductible and premium tend to move in opposite directions; raising one will almost always result in a decrease in the other. However, how do you select the appropriate deductible, and what factors should you consider when making that critical choice? Here are some straightforward steps to assist you in choosing the right deductible.
Think About Your Comfort Level
Each individual is unique, and no two people will approach or assess risk in the same way. When it comes to insurance, it is critical to consider your comfort level to choose a policy that allows you to sleep at night.
Consider the financial impact of a large insurance claim on you and your family. Could you afford to spend $500 or $1,000 to repair your car or home in the event of an emergency? Think carefully, as the answer to this question will tell you a lot before you proceed.
Compare Costs at All Deductible Levels
Insurance premiums and deductibles may move in opposite directions, but their patterns are not always predictable. You may discover that increasing your auto insurance deductible from $250 to $500 results in significant premium savings, whereas increasing it from $500 to $1,000 results in no savings at all.
When selecting the appropriate deductible, you must have all available information, including requesting all deductible levels. Request quotes on all deductibles from your agent so you can weigh the benefit of a lower premium against the risk of accepting additional risk in the event of a claim.
Use the Premium Savings to Boost Your Emergency Fund
If all goes well, your new higher deductible will never come into play, and you will never need to file a claim. You will continue to enjoy the lower premiums, using the extra cash to increase your emergency fund over time.
That is the outcome of a perfect world, but as we all know, the world is far from perfect. You want to ensure that you are covered regardless of what life throws at you, which requires your premium saving strategic use.
If you already have plenty of emergency savings, feel free to invest your premium savings any way you wish. However, if your emergency savings account could use a boost, you can redirect the money you save to it.
Insurance shopping can be an incredibly complicated process, with numerous decisions to make along the way. From the size of your deductible to the liability coverage limits, these choices will have a significant impact on your financial future. Now that you're aware of what to consider, you can choose the appropriate deductible, which will allow you to save money on premiums while still sleeping soundly at night.