Will I save money if I raise my insurance deductible?
What's an insurance deductible anyways?
Before we even get into whether you should raise your deductible or not, let’s all make sure we’re on the same page when it comes to what a deductible actually is: An insurance deductible is the amount of money you have to pay on an insurance claim before the insurance company will pay for you. For example, if you make a claim for a $1,000 repair bill for your house and your deductible is $500, you’ll pay $500 first, and then the insurance company will reimburse you for the rest.
Deductibles can vary for a lot of reasons, but you have some control over what yours is. If you’ve got the cash around, increasing your deductible can help you save — and save a lot, depending on how high you’re willing to raise it! It’s a tricky calculation though, and there can be costs (literally and figuratively). The deductible is really equivalent to the financial hit you’re willing to take on yourself; so the higher the deductible, the greater the gap between what you owe and when your insurer starts to pay.
Insurance is counterintuitive. A general rule of thumb is the less money you have in your bank account, the more important it is to have insurance. After all, this is America, where a visit to the ER or a car accident can cost you a whole heck of a lot of money. So while it may mean paying more each month, a lower deductible can save you thousands — if not hundreds of thousands — if you have to make a bigger claim.
That being said, everyone has different financial needs and a different financial reality. If you’re on the fence or just not sure what exactly to take into consideration, here are a few questions to think about when deciding whether to raise your deductible.
How much can you actually save?
Sounds straightforward, but what kind of savings are you really looking at? You’ll want to run the numbers before steamrolling ahead.
How often do you make insurance claims?
If you never make any claims and are happy to pay for some things (like fixing a broken windshield) out-of-pocket, it may make sense to have a higher deductible. Each year you don’t make a claim means more savings in your pocket. (And this doesn’t even include the possibility of a claims-free discount, which some providers offer.)
How much can you comfortably increase your deductible by?
Raising your deductible means you save on your rates. BUT if you increase your deductible, you may end up paying more out-of-pocket if you have to file a claim. So before you decide to up the price, make sure you have access to enough cash in case of emergency. Remember, too, that if you have a high deductible and you suddenly have to make a claim you can’t afford, you’ll be mired in paperwork and pain. We all pay somehow, whether that’s money, time, or our fragile sanity.
But let’s look at an example, to better explain things. Let’s say you raise your deductible from $500 to $1000 to save yourself $100 a year on your homeowners insurance premium. For six years, you make no claims, and save yourself $600. But in the seventh year, your apartment floods and there’s $900 worth of water damages. Because you didn’t hit your deductible limit, you’re on the hook to pay all $900 worth of damage, and your insurer won’t step in to cover anything. You’ve only saved $600 over the last 6 years. Where will that extra $300 come from? You’ll be paying out of pocket for it, so you need to be sure you’ve got that money on hand.
Does your provider offer a deductible waiver?
Does this sound too good to be true? Well, knock me down with a feather, because it isn’t (which is to say: it really is true!). While all companies have different rules, the gist is the same: many insurers will offer deductible waivers on automobile or homeowners policies in case of a massive loss. Think damages upwards of $10,000, or maybe $50,000 — it all depends on your provider. (But be mindful when it comes to your car insurance, because sometimes a deductible waiver can increase your premium overall. Moral of the story: read the fine print!)
At the end of the day, it’s always good to explore your options. In fact, we encourage you to do so! And while we all want to lower our insurance rates, remember there is more than one way to save money. So check out your Marble wallet, where you can compare quotes, shop around for new policies, and earn rewards on the insurance you already have!