You may not have given much thought to the deductibles on your auto and homeowners insurance policies, but they’re more than just numbers. Deductibles are liabilities you’ve agreed to accept in the event of a covered loss. Having the appropriate deductible for your situation could not only provide peace of mind but might even save you some cold hard cash. A deductible is the amount a policyholder must pay out of pocket before the insurance company pays the covered amount on a claim, up to the policy limits. Having a deductible in place means that the insurer and insured agree to share the risk according to a predetermined formula.
It’s important for you to be comfortable with the financial risk that each deductible represents. But it’s also important that you balance the risk and the cost of your premium.
Choosing a higher deductible for a specific type of coverage typically reduces the premium for that coverage. Most policyholders do not file claims very often, so choosing larger deductibles for your homeowners or auto policies may be a way to save money over time and still be protected financially from a major loss that you could not afford to pay for on your own. For example, increasing the deductible from $300 to $500 on your automobile insurance collision and comprehensive coverages might reduce premium costs by 15% to 30%; selecting a $1,000 deductible could save you an additional 10 – 15% or more. Raising your homeowners insurance deductible from $500 to $1,000 could save as much as 15% on the annual cost.
If you already carry a high deductible or decide to raise it to reduce premiums, consider maintaining an emergency fund to cover the amount you might owe in the event of an incident such as an accident, theft, or fire.
Scott Parker
Dumfries Mutual Insurance Company
519-841-1099