One of the unavoidable components of most insurance policies is the deductible, which is the out-of-pocket amount you have to pay on a claim before your insurance coverage kicks in. With many insurance policies, you can choose the size of your deductible, and deciding what amount of deductible is right for you can be a tough decision.
Deductibles are common with health, auto and homeowners insurance policies. The deductible saves the insurer money and lessens its risk by requiring the insured person to pay a portion of every claim he makes. The presence of the deductible also discourages insured people from making many small claims, because it is not worth their time and effort when they have to pay all or most of the cost out of their own pocket.
With homeowners and auto insurance, you are usually allowed to pick your deductible from a range of choices. Common deductible amounts are $250, $500 and $1,000. Some auto and homeowners insurance policies may even allow you to choose an option with no deductible.
With health insurance, you don’t get to choose your deductible, but you may have a choice of policies offering different levels of insurance coverage with different deductibles.
The biggest consideration with deciding how big of a deductible to carry is saving money. With auto and homeowners insurance, the larger your deductible, the lower your premiums will be. However, that means you will have to pay more out of pocket should you file a claim. With health insurance, if you choose the high-deductible policy option, you will save money on your premiums but will have more out-of-pocket costs.
In figuring how much of a deductible to carry, you have to take two things into account: how likely you are to file a claim and whether you will be able to afford a large deductible payment.
For example, if you are an extremely safe driver and you have a big savings account, then it may be worth your while to carry a high deductible, because you will likely be saving money in the long run on premium costs, even if you have an occasional claim.
On the other hand, if your house is in tornado alley and you would have to put a $1,000 deductible charge on a credit card, it might make more sense to carry the lower deductible and pay a little bit more in premiums every month.