How Do I Choose an Insurance Deductible?
A deductible is the portion of a claim that you will pay for most insured losses, although there are some instances where the insurer will waive the deductible or where none exists.
Choosing the right deductible for you is an important decision – and there’s a lot more to it than just choosing the one which offers the most cost savings. In fact, making a choice based on savings alone could end up costing you more in the event of an accident or claim. At Alpine Insurance, we have the expertise to help you make the right decision when it comes to deductibles and avoid some common pitfalls.
The first thing you need to consider is what amount you’d be able to pay if you needed to make a claim. You may find you can save money – for example an extra $500 a year – by increasing your deductible. But that savings means nothing if you can’t afford the deductible itself. So, in the event of an accident or claim, if your deductible has been increased to $5000, it’s critical that you to be able to easily access this money. If $5000 puts a strain on your bank balance, then those up-front savings are not for you.
You also need to measure the cost versus the reward. If we consider the above once more, you save $500 a year by increasing your deductible to $5000. Let’s also assume your original deductible was $1,000. If you follow the math through, you’ll see these savings are misleading.
With no losses, you’ll only be breaking even on that increased deductible by the eighth year. So you may have saved $500 as a result of increasing your deductible, however if you have an accident, you’re paying $4000 more for your deductible ($4000 deducible ÷ $500 savings = 8 ). That means, you need to wait until the eighth year before you’ll break even (8 years X $500 savings = $4,000 additional deductible amount). But if you need to make a claim before that – say on the fourth year – that increased deductible will have cost you money.
Your total policy premium is another factor to take into account. In most cases the discount you receive is based on a percentage. In other words, the smaller your premium, the smaller the discount savings.
Insurance companies know people often use deductibles as a way to trim some of the premium from their policy. Insurers use claims data from previous years to determine what their company needs to charge for the coverage, including the deductible increase. Sometimes this means the savings are not large enough to warrant making a deductible change.
With so many factors to take into consideration, making a decision on deductibles can be complicated. Our knowledgeable and trusted team of brokers at Alpine Insurance in Alberta will help you carefully examine all your options so you can make the right choice. For more information on insurance deductibles, contact an Alpine insurance professional today.
Alpine Insurance – Alberta’s Trusted Advisors
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