You may wonder how your insurance rate is calculated; it is based on several factors, most of which you have no control over. However, you do have complete control over the insured amount of the insurance you purchase, as well as the deductible amount.
For example, consider the following scenario:
I received a call from Jane about buying a motor vehicle insurance policy for her 18-year-old daughter who just obtained her driver’s license. Jane was horrified by the rates I found. She could not believe how expensive her teen’s auto insurance was. Therefore, I suggested that she raise her deductible from $500 to $1,000. She saved over $250.
Raising your collision coverage deductible may save you an average of $250. Everyone should consider raising their deductible and applying the savings to additional liability coverage or something else.
A deductible is payable on your insurance policy to eliminate small claims. Carriers spend a significant amount of time and money dealing with small claims and, as a result, they are willing to pass on the saving they achieve by avoiding them completely by providing the option of a high deductible – a good option for both the insurer and insured.
To carry a higher deductible means that you’re willing to contribute to the settlement of any claim up to a set amount or percentage. For example, if you have a $1,000 deductible and you have a loss of $2,000, you will contribute $1,000 toward the loss and the carrier will pay the difference.
It is absolutely worth it if you’re a responsible driver and have the funds set aside in the event of a loss. You and your agent will need to balance the costs and benefits to determine if carrying a higher deductible is beneficial to you. For example, I have a client who purchased a policy for high-value property, and he opted for a percentage deductible. This means that he will contribute a set percentage such as 2% or 5% to settle a claim, but the savings were more than $500 annually.
In conclusion, you’ll need to balance the risk and potential savings to see if a higher deductible is right for you, but the numbers speak for themselves.