As insurance costs rise, more individuals, families and businesses are looking at using higher deductibles. Choosing the right insurance deductible is important and it does take some thought.
There are advantages and disadvantages to increasing your deductibles. So here are some things to consider before you make a decision to increase your personal or business insurance deductibles. First, let’s take a look at individual and family considerations and then we’ll look at business considerations.
The idea behind insurance is to save you from a catastrophic loss from which you cannot recover. This sounds reasonable but it does not mean everyone should use high deductibles. For example, if you are elderly and living on a fixed income, high deductibles are not likely a good choice. Especially, if your savings are limited. This may be true for younger insurance buyers, too. If you have no savings or the ability to borrow, you should consider a low to moderate deductible.
In addition, you must consider the worst case scenario before choosing a deductible. When a catastrophic event occurs, it may involve your home and your auto. Can you stand the financial impact of two large deductibles for the same occurrence? If not look for a policy that only charges one deductible if both your home and auto are involved in the same claim.
If your circumstances allow you to consider a larger deductible, here are the advantages and disadvantages:
Buying Tip: Most insurance companies have a “sweet spot” regarding deductibles. You may find that a $2,500 deductible has less impact on your premium than a $1,000 deductible. Request pricing using several deductible options, that way you can determine the best value.
Business Insurance and Deductibles
A business may have more deductible options than are available to personal insurance buyers. A business may also have more flexibility in using large deductibles. Evaluating how to use large deductibles to manage business insurance premiums takes some planning. Here are the advantages and disadvantages for the business use of high deductibles.
Buyer Tip: You may have a hidden deductible about which you are unaware. It is called co-insurance. Many commercial insurance policies contain a co-insurance clause. Co-insurance requires that you insure to value as agreed to in the policy. If you do not, your claim settlement will be substantially less than you expected after the co-insurance penalty and deductible are applied.
Large deductibles do have advantages…but not for everyone. You must evaluate your situation to determine the advantages right for your family or business.