Finding the Sweet Spot with Your Deductible
A deductible is a major part of any insurance contract. Whether it’s homeowners, car, business or health insurance there’s very little around having to pay a deductible. It is the amount you have to pay in that specified period of time, like a year, before your insurance company covers the costs stated in your plan. You either pay a low deductible or a high deductible. You will find policies that are zero deductible, but it comes with a price. It’s like a balance, just like everything in life. Your job is to figure out your sweet spot.
Understand Your Insurance Plan
You’re probably reading this because you’ve recently been hit with a large medical bill–a bill you thought your insurance was supposed to cover. Time and again, we meet newbie insurance buyers who (rightfully so) complain about their policies. It turns out they made their decision based on some helpful chart online that showed how much per month they’d pay and save. They skipped through all the fine print and were unclear about the details around deductibles, premiums, coinsurance, and copays. Unfortunately, insurance customers don’t get involved enough with their policies until it’s too late.
There’s nothing more frustrating than having a minor medical emergency, and getting hit with a $500 bill for a 10-minute visit with the Physician’s Assistant at the Urgent Care facility. This is the same frustration you get when getting into minor fender bender, and the cost to repair your car is high, but still lower than the deductible you have to pay before your insurance kicks in.
If you’re not educated or in tune with your insurance coverage, the expense you incur from a doctor’s visit, car repair, or home disaster can catch you off guard, and potentially leave you in credit card debt.
Balancing Your Deductible
You have to know what you have and how much income you receive each month. Do you have an emergency fund or good savings pot? If so, you could save on monthly premiums by opting for a high deductible insurance plan. If you don’t have any savings, then your option is to pay a little bit higher each month so you don’t have to worry about a high deductible.
For homeowners insurance, having a high deductible can mean annual savings since your monthly premium will be lower. You only pay a deductible each time you make a claim. The average homeowner makes a claim only once every 10 years, so with this in mind, lowering your deductible to $500 from $2,500 can save an average of $260 per year. That may not seem much, but you can see how deductibles play the balance into your insurance plan, and how you’ll need to consider all your risks and factors. You have do the math.
For health insurance, a low deductible could make the world of difference especially if you are a big family with kids, have a chronic condition, know you will undergo medical treatment, or require ongoing medication. A high deductible plan would require you to pay out-of-pocket costs before your insurance kicks it. Consider the high cost of refilling medication each month, x-rays, and other services related to your health needs. If you don’t have a large cash reserve (or a hefty credit line) a zero deductible plan, in which you pay a higher premium each month could prove to be more “doable” than paying large one-time sum expenses.
Deductibles for car insurance also has its own factors to consider. Although you can’t control the unforeseen freak accident, you can control your driving habits and avoid accidents. It is typically advisable to increase your collision damage deductible and pay a lower premium, which can help you save if you are a safe driver. The amount of annual savings you get from increasing your deductible for car insurance is often not enough of a savings to get a high deductible plan. And it makes a difference if you’re 50 versus 20 years of age.
Ask Your Insurance Advisor to Help with Your Sweet Spot
There are many factors to consider when finding your deductible sweet spot and it’s important that you discuss all your options with a licensed insurance advisor. Do not haphazardly commit to an insurance plan, simply based on price alone. Choose an independent insurance advisor so they can shop for the best company and best policy on your behalf.
