When buying any type of insurance it is important to know what you are buying and how it will benefit you.
First, what is insurance?
Insurance is transferring risk from you to another through the exchange of money. It is that simple, some insurance is required by various laws and other insurance is optional. An example of a required insurance in Florida is vehicle insurance while an optional insurance would be renter’s insurance (although I consider it required).
Before you check out and glaze over this topic let me show you how you can save money by adjusting your insurance deductible. I will use automobile insurance as an example but, this information applies to almost every type of insurance.
WHERE TO START
With auto insurance there are many different factors that can have an endless impact on your overall premiums, such as age, type of coverage, coverage limits, type of vehicle, driving history, credit score and on and on. This post will specifically speak to the insurance deductible and how to determine if you need to change yours to save money or reduce it to eliminate financial risk. There are three things you need to determine.
First, determine is how much risk you can accept. This is generally done by looking at your emergency fund. Your deductible should not be greater than you emergency fund. If you have a $1,000 emergency fund and you have two vehicles with $1,000 deductibles – your emergency fund is too low OR currently your deductible is too high.
Second, determine how likely it is that you will have an insurance claim. Have you had a claim in the last 5 years? Multiple claims? No claims? Knowing this information will help you determine how much of a deductible to choose.
Third, contact your insurance company and ask what the difference would be between you current deductible and a different one. There are many options so I will cover the common deductibles $250, $500, and $1,000. Download and print this checklist to use when contacting your insurance company.
HOW TO DETERMINE YOUR DEDUCTIBLE
Once you have the information from your insurance company put the numbers in the checklist and do the calculation. This will tell you how many years you would need to be accident free to come out ahead financially. For example, my annual family car insurance premium would be $2,425 with a $250 deductible. It has been over 5 years since my last insurance claim. When I requested a quote for a $1,000 deductible, I was quoted $2,158.76 per year . Using the checklist my family would need to be accident free for 2.81 years to come out ahead financially with the $1,000 deductible.
Now it is your turn, print the insurance deductible checklist and contact your insurance company to see what your savings will be. Your results will vary but the calculations above and in the checklist will make this article specific to your financial situation.
Personally, my family chooses the $1,000 deductible on most of our insurance policies because we choose to self-insure through the smaller claims and save filing a claim for major incidents. Additionally our S.A.F.E. could handle this financial event.
Did you get any savings from this article? Let me know in the comments below.
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