A lot of financial planners out there like to tout high deductibles as a way of helping you save money on your insurance premiums so you can invest that extra money towards retirement. This is sometimes a business tactic by them to free up some extra money for you to invest in their proposed plan. While this is a good idea for some, it’s probably not a great idea for the average consumer.
In my experience, most people who have a $1,000 deductible or higher haven’t really given it much thought. They want to get the cheapest possible price on insurance, and they don’t really think about the possibility that they might have to file a claim. Next thing you know, they are in a car accident resulting in $1,200 damage to their car, and they are responsible for $1,000 of that bill. If they had purchased a $500 deductible, or even $250 or $100, they would have much less to pay out-of-pocket for the damages. Their insurance premium would have been higher, but probably not by a huge amount.
Most of the time, comprehensive coverage is very inexpensive. The price difference between a $500 and $100 comprehensive deductible is often only a few dollars per month. Having a $100 comprehensive deductible means, among other things, that if you need a new windshield, the insurance company will pick up most of the cost. Some companies offer ‘full glass coverage,’ which means that even if you have a $500 or $1,000 comprehensive deductible, they will waive it for glass claims. This is typically an endorsement that you have to add to the policy that costs extra.
Collision coverage is more expensive then comprehensive coverage, which is why people often purchase a low comprehensive deductible, with a higher collision deductible. This is very common and not a bad idea, but again, it’s important to look at all the price options, and then think about what makes the most sense for you.
On homeowners policies, people very often purchase a $1,000 deductible. Their thinking is that if their house ever burns down, they can afford to pay $1,000 of the damage if the insurance company is covering the other $200,000. However, they don’t think about the small claims that arise, such as theft, a flooded basement due to sewer backup or broken pipes, and vandalism. These claims can be anywhere from $800 on up.
The most important thing is to think about possible scenarios when purchasing your insurance policy, and ask yourself: “would I file a $1,200 claim, or pay it myself?” If you think you might file smaller claims, then a $1,000 deductible is probably not right for you. It would be worth it to pay a little bit extra for a lower deductible. However, if you are handy around the house, know how to repair cars yourself, or simply don’t mind paying the smaller claims out-of-pocket, then consider a higher deductible.
Make sure to talk to your agent about all the different deductible options on your insurance policies so you can make an informed decision on your deductible.