What is the difference between a deductible and a premium?
A premium is the amount of money that you would pay your insurance company in order to keep your policy active. Unlike a deductible, your premium is generally paid on a monthly, annual,or semi-annual basis.
Your deductible and your premium go hand-in-hand; if one is higher, than the other will be lower as a result. There are pros and cons to both options, most of which will be discussed in this blog.
In what situations am I required to pay my deductible?
Each type of policy will require you to pay your deductible when making certain and specific types of claims.
Under a car insurance policy, you will have to pay your deductible if you file a claim for any of the following:
- An at-fault accident
- A partially at-fault accident
- A theft or act of vandalism
In regards to a home insurance policy, if you file a claim for any of the following situations, you will have to pay your deductible:
- Damages to personal property
- Loss of uses of your dwelling
- Damage to your building
Some situations on your home insurance policy may actually require you to pay an additional deductible. These can include water damages, sewer damages, and damages due to a hail or wind storm.
Will increasing my deductible actually save me money?
The short and simple answer to this question is yes; if you increase your deductible, you will save money on your premiums. However, this will truly depend on your own individual circumstance. In short, the higher deductible you choose the lower the premium.. It is important to keep in mind that if you were to increase your deductible you will be responsible to pay it to the insurance company should a claim occur, as we explain below.
Could increasing my deductible end up costing me more money?
The short answer to this question is also yes, but once again depends on each individuals’ circumstances. Having a high deductible could bring some serious financial consequences, especially if you are someone who tends to make frequent claims with your insurance company. Every time a claim is made, you will have to pay your deductible. If your deductible is extremely high, You will be responsible for paying it in full every time a claim occurs.
Having a high deductible could also negatively impact you in the event of filing a small claim. If the cost of damages you are filing for are less than the cost of your deductible, it will make no sense for you to even file the claim. It will ultimately cost less money for you to pay for the damages out-of-pocket. Racking up tons of small claims like this could result in you potentially losing a lot of money in the long run.
If you do decide that having a high deductible is not for you, there are a lot of other ways to save money on your insurance. Having an extremely expensive deductible is not your only option!
What factors should I consider before changing my deductible?
When deciding what deductible to choose, there are a number of important factors for you to consider.
- Your Financial Situation: The first thing that you should ask yourself is whether you have the financial capacity to pay a large deductible if need be. If you have a sufficient amount of savings to pay a large sum all at once, than it may be worth opting for a higher deductible. If not, then you will probably be better off with a lower deductible to ensure you will not be left in any sort of financial bind.
- Your Location: Depending on the area that you live in, it may be more beneficial for you to consider a lower deductible. For example, if you live in a city that has a large volume of small accidents as a result of heavy traffic, then a low deductible is probably your best option as you may be more likely to get into an accident than someone living in a low populated area.
- Frequency Of Accidents You Are Involved In: If you are someone who gets in a lot of accidents, or generally makes a lot of claims, you will most likely want a lower deductible. This is so you won’t have to pay out such a large sum each time that you make a claim. However, if you have a very clean driving record, having a higher deductible could be beneficial for you.
Conclusion: You have options
Deciding what price to set your deductible at can be a tough decision. When making this choice, it is important to consider your own individual situation and how a higher or lower deductible can benefit you.
Have more questions about your deductible, premium or other coverage options? Get in touch with one of our licensed insurance professionals today.