Save Money on Your Insurance Premiums by Changing Your Deductible

By Linda Rey

During these tough times, people are looking for different ways to reduce the increasing cost of insurance. One of the first places to look is the deductible. A deductible is the amount of money the insured pays before the insurance company pays the balance of the claim.

The higher the deductible, the lower the premium. A carrier discounts a policy for a higher deductible for a couple of reasons. Obviously, the carrier has to pay less money, compared to what it pays per claim. The higher the deductible, the more money the insured has to pay out of pocket. This may translate into the insured exercising extra care to avoid paying exorbitant out-of-pocket costs. A deductible helps reduce the carrier costs because the carrier doesn’t have to pay on relatively small claims.

Here are some suggestions for deductible levels on various insurance policies:

Auto Insurance
We typically quote $500 on the collision deductible and $250 on the comprehensive. What we’ve seen is that there is not much difference between $500 and $250. The biggest cost factor is in the collision deductible.

Also, depending on the type of car, the driver’s motor vehicle report (MVR), and the financial status of the insured, it may be worth checking the math to determine if there is a substantial enough difference between the policy and premium to go with a higher deductible.

Homeowner’s Insurance
We typically suggest $1,000 for most single-family dwelling homes. For high-value homes, where the dwelling limit is over $2 million, the policyholder might need to maintain a higher deductible, around $5,000 to $10,000.

Business Insurance
Typically, a deductible applies to property damage. Most deductibles do not apply to liability claims. Depending on the value of the contents or the building, it’s worth it to play with the deductibles to see what kind of reduction you can get in the premium.

With professional liability, the word “retention” is synonymous with deductible. It’s the amount of money you pay before the carrier will pay. In most cases, the options are $2,500, $5,000, and $10,000.

Health Insurance
There is conflict within the health insurance industry—policyholders are experiencing double-digit increases and fewer options as mergers leave fewer carriers from which to choose. Carriers are offering in-network deductibles, which policyholders didn’t see ten years ago. It can be a difficult reality to pay high premiums and still potentially be faced with high out-of-pocket expenses.

Take a look at my previous post on high-deductible health insurance options for more explanation.

Disability & Long-Term Care Insurance
The deductible in these cases is known as a “waiting period.” The insurance company starts paying benefits after a certain number of days have elapsed. A 90-day waiting period is standard. The waiting period is a form of being self-insured. The longer you wait, the lower the premium. Waiting periods vary: 30 days, 60 days, 90 days, 180 days, or 365 days.

With all insurance policies, there’s a wide range of options. Before you get frustrated and make rash decisions about reducing coverage or moving your policies from your agent, consider different deductible options.

Linda Rey is a licensed insurance agent at Rey Insurance with a broad spectrum of expertise in life, accident, health, property and casualty insurance as well as retirement planning and college funding strategies.

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