Does Raising Your Deductible Actually Save you Money?

Chances are that you’ve heard of the old trick to increase your insurance deductible in order to save money. It’s an oldie but goodie because it does save you money. But do you know the true effects of raising your deductible? Are you able to figure out how it actually saves you money (if it does at all)?

Check out our tips below.

The Theory of a Higher Deductible

A higher deductible puts more the responsibility of a disaster-related to your home or car on you. If you have to file a claim, you are first responsible for the equivalent of your deductible. For example, if you have a $1,000 deductible, you must pay the first $1,000 in damages before your insurance helps.

With a higher deductible, insurance companies have a lower risk. You are fronting a larger part of the burden. In exchange, many insurance companies may provide you with a lower premium. Measuring how much you’ll save each month compared to how much you must save to cover your deductible is important.

Do you Have the Savings?

Here’s the real kicker. You need a funded emergency fund to account for the higher deductible. It doesn’t do you any good to increase your deductible only to find yourself charging it on a credit card or taking out a payday loan. Only increase your deductible to a level that you know you can afford. If $1,000 is going to be hard for you to achieve, choose a lower deductible that you know you can save or the savings on your premium may be fruitless.

Will it be hard for you to keep saving that amount? The average homeowner only files a claim once every nine years and the average driver only makes three claims on auto insurance by the time he or she hits 70 years old. If you are more ‘accident prone’ and think you’ll make claims more often, make sure you choose an affordable deductible that you can easily save.

Do You Feel Safer With a Lower Deductible?

Some people just feel greater peace of mind with a lower deductible. They don’t want the stress of deciding whether or not they should file a claim. In the case of a total loss, such as a house fire, you won’t have a choice but to file a claim, which means covering that deductible.

Think about what makes you feel at ease. Is a larger deductible with a lower monthly payment more your speed or would you rather have that lower deductible and peace of mind?

Other Ways to Save on Insurance

If you want to keep your high deductible, there are other ways to lower both your car and home insurance premiums:

• Only pay for the coverage you need – Many policies come ‘prepackaged,’ but you have the right to ask what coverages come with it and take out the ones you don’t need.
• Bundle your policies – Many insurance companies provide discounts for those that get both their car and home insurance through them. You may save as much as 15 percent or more on your insurance if you bundle.
• Have good credit – Your credit score may affect your home and auto insurance premiums. The better your credit score is, the more likely you are to get lower premiums. Insurance companies look at your payment history and your loyalty too when determining your rates.
• Shop around – It’s a good idea to shop around for insurance every year or two. It’s easy to get comfortable with your insurance policies, but you may not notice the slightly increasing premiums as the years’ pass. Instead of getting comfortable, get new rates every few years and see how much you can save.

Raising your deductible on your car or home insurance may save you money, but is it worth it? Really think about where you stand financially. Will a large deductible put you in financial distress? If so, consider keeping your higher premium and leaving your deductible alone. You have many other options when it comes to lowering your insurance premium including reducing or eliminating coverages that you don’t need or shopping around for a better rate.