Saving Money – Lower or Higher Deductibles?
Keeping down the cost of your annual expenses is a difficult task, especially in an economy where prices are continually going up on nearly everything you buy. It’s important to continue trying though, especially since every once in a while, you will discover a unique way to save on your bills.
Reviewing Your Deductibles
If you are like many people today, you automatically pay your insurance bills without reviewing most of the paperwork that arrives with them. Take a few moments to review your deductibles on your car, homeowner, motorcycle, boat, or trailer insurance policies. You need to know what your deductibles are before you can determine whether or not you should lower them.
Can You Save Money with Lower or Higher Deductibles for Your Insurance?
The answer to this question depends on the existing deductible, the type of insurance involved, the insurance company that you use, and your personal experiences to date. Even so, in general, you do save money when you raise the value of the deductible on any of your insurances, at least until you have to use it.
For property insurance, you should begin with a $500 deductible. A good place to start for motor vehicle insurance is $100 for comprehensive and $500 for collision. These numbers are relatively standard. These deductibles are designed to save out-of-pocket costs in the event that you put in an insurance claim. This is the only time that a lower deductible can ever save you money. If you haven’t made any claims on your insurance policies to date, then it is fairly safe to say that you can benefit by increasing the amount of the deductible on your policy.
Benefits of Higher Deductibles
Higher deductibles usually lower the cost of your annual premium. When you raise your deductibles, you receive instant savings by obtaining a lower premium. As time passes, you save money each and every year due to this lower annual cost for the insurance. Raising your insurance deductibles can save you money over the years as long as you don’t have to put in a claim in the first couple of years after you make the switch from lower to higher deductibles.
Put Your Premium Savings in a Special Account
If the thought of having a higher deductible scares you, take your savings and place it into a special bank account each year. Continue doing this until you have saved up the difference in the deductible. Calculate the amount of money that you need to put away based upon the first year’s savings. For example, your homeowner’s policy has a deductible of $500, but you switch it to $1,000. You realize a savings of $175 in the cost of your premium. In three years time, you will have saved up $525 or more than the added increase in the premium. After this point, your higher deductible continues to save you money that you can either continue saving or spend. You can use this same strategy for any of your other insurance policies.
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