Determine what deductible best meets your needs.
When you buy insurance, your policy may include a deductible. This is the amount that you agree to pay on a bill before the insurer pays the benefits. In the event of a claim, this is an immediate out-of-pocket expense. Health, dental, home, and auto insurances all have deductibles, so it’s important that you understand how to select the right one for your needs.
If you get into an auto accident, you would need to pay the deductible for any needed repairs before the insurer pays the balance, up to the policy limits. In general, high deductibles can lead to lower premiums, but also higher out-of-pocket costs.
The best benefit of having high deductibles is that you pay lower premiums than you would with a lower deductible. The insurer has less risk with a high-deductible policy because the benefit payout on a claim is reduced. With a higher deductible, you also avoid wasting money for benefits that you would not likely use. For example, young, healthy adults who don’t need as much health care often choose a high deductible. By eating right and exercising to stay fit, these young adults protect themselves against health issues and the need for extensive health coverage.
High Out-of-Pocket Risks
The most significant downside of a high-deductible plan is that there is a significant out-of-pocket expense in the event of a claim. For example, on a $1,000 deductible auto policy, you will be required to pay $1,000 towards the expenses before your insurance kicks in. This is a sizeable outlay compared to a $250 deductible.
Talk to Your Insurer
Your insurer will be able to advise you on the right policy and deductible for your needs. Depending on your financial situation, you may need more coverage or a lower deductible.