Insurance is essential for when things go wrong in today’s hectic world. It can also be a substantial expense month after month for many families throughout the U.S. One thing that can greatly impact total insurance premiums is the deductible amount associated with your insurance policy. The more you understand about the deductible, the better able you will be to make informed decisions about the right deductible amount for you and your insurance coverage needs.
What is a Deductible?
An insurance deductible is the amount of money you pay out of pocket when covered events occur. It is your way of sharing the risks of a loss with the insurance company. The greater the deductible, the greater your personal risk will be when accidents, injuries, and other covered events occur.
Here’s how a deductible works. If you are in an auto accident and the repair company quotes you a price of $2,500 for repairs, the insurance will cover what remains of the bill minus the deductible. If you have a $500 deductible, the insurance will cover $2,000 of the costs for repairs. If your deductible is $1,000, the insurance will cover $1,500.
Different insurance companies will offer different deductible options, and some states have passed laws establishing a range for insurance deductibles, so keep this in mind when determining what deductible amount you are most comfortable.
The Impact of Deductibles on Insurance Premiums
Because deductibles represent a form of shared risk with the insurance companies, insurers are willing to reward those who choose higher deductibles with lower insurance premiums. The net result is that you enjoy the benefits of lower insurance rates and have added personal incentive to stay fit and healthy, drive defensively, and protect your home with outstanding maintenance and preventative actions.
It is a tactic that many people use, along with things like bundling insurance policies, taking defensive driving courses, and making certain safety updates to their homes and vehicles to save money on insurance. It also happens to be very effective for cutting the yearly costs of having insurance.
Auto, Home, and Health Deductibles
Because you have the opportunity to save on home, health, and auto insurance through higher deductibles, you can maximize your savings by choosing a higher deductible plan.
However, this approach is not the right one for everyone. If you have trouble making ends meet as it is, then you may want to reconsider higher deductibles. No amount of diligence can prevent all accidents, illnesses, and injuries. Insurance is designed to prevent these things from becoming financial catastrophes for your family. The higher the deductible, the bigger the burden will be for your family finances when you need help the most.
How Do You Choose the Right Deductible?
It is never easy choosing the right deductible for insurance. That is one product most people buy hoping they will never need to use it. It is hard to decide to go with a lower deductible when you never want to have an occasion where you pay out a deductible. Unfortunately, many people who can least afford costly deductibles choose this option to cut costs on monthly premiums, but in turn, create bigger bills for themselves down the road when accidents occur.
Work closely with your insurance agent and be honest about your financial situation to come up with a policy that provides the protection you need – and the coverage – without creating a potentially devastating financial loss for your family of a covered event occurs.
Insurance products are offered through Bangor Insurance, a division of Bangor Savings Bank.