When you’re trying to save some money, paying a hefty insurance premium can make a significant dent in your budget. You know you need ample coverage, but you want to pay as little as you can. Fortunately, increasing your deductible is often the ideal solution.
You buy insurance to protect you so you’ll survive the economic impact of a negative event and get back on your feet again.
If you have a low deductible (the amount you pay before your insurance kicks in) you pay higher premiums. When you have a lower deductible you’re more likely to submit claims for smaller issues, so insurance companies charge you higher premiums. When you choose a policy with a higher deductible, your premiums drop because you’re less likely to submit a claim.
Some people balk at the idea of increasing their deductible, because they’ll pay more out-of-pocket if something goes wrong. However, increasing your deductible makes sense if you’ll recoup the money via premium savings within a reasonable time and if there’s a low likelihood of filing a claim.
A September 2014 survey by Quadrant Information Services found raising your automobile deductible from $500 to $1,000 could save you between 3.9% and 19.2%, depending on where you live. If you drive an expensive vehicle, your savings could be much higher.
Collision coverage costs much more than comprehensive, because it makes up most of your overall premium. It makes sense to choose a higher deductible for collision coverage, and a lower deductible for your comprehensive.
If you’re a safe driver and with a clean driving record, consider how much you’ll save if you drive that long again without a claim. For example, if you’ve driven for 3 years without an accident you can look at potential savings over the next 3 years. Let’s say you’ve decided to adjust your deductible from $100 to $500, and your premium drops $180 per year. Over 3 years that’s $540 in savings. Even if you were to have an accident you would still pay less than the increase of $400 for your deductible. If you do not have an accident, you save the full $540.
It’s important to set a deductible level you can live with should something happen. If you set your deductible too high it can become a significant burden if you do not have an emergency fund to pay it.
Your insurance agent can help you find the correct balance between price and risk for savings on all your insurance products. Increasing your deductible may be the ideal way to save significantly, while retaining sufficient insurance coverage.