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Quick Tip: Raise that Deductible

Whenever I see it, it makes me want to pull my hair out: A deductible on an auto or homeowners policy that is $500 or less.

Why is it a problem? It’s a Catch-22. For most people who opt for the low deductible, you would think that paying a higher premium will be rewarded by having a lower out of pocket outlay if you made any claims. The problem is that if you have a history of a lot of small claims, the insurer is likely to raise your premium or even worse, deny your future coverage. More often than not you actually end up paying a lot more in total premiums and claims by opting for a lower deductible. Insurance should be used for financial risks that you can not afford to lose. You should be basing your deductible on that, not trying to avoid all financial risk. And I suspect that many of you could afford a loss that is higher than $100, $250 or $500 (it wouldn’t be fun, but you could afford the loss without financial catastrophe).

So take a look at your auto and homeowners policies. If you opted for the lower deductible, I suggest pricing out a higher deductible amount; you may be very surprised on how much you can save. In some cases, people just buy the policy without even being advised on the trade-offs between premiums and deductibles; it’s likely your deductible is minimal. It makes an awful lot of money for the insurance company, but it’s something you are better off without.

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