You've probably thought about finding the right work/life balance, or determined the perfect ratio of coffee to cream and sugar. But have you put much thought into finding the right balance between the deductible and the premium on your auto and homeowners insurance? If not, you may be missing an opportunity to save yourself some money while still enjoying the peace of mind of having adequate coverage if a crisis arises.
Understand the Terms
The deductible on your auto and homeowners insurance is the amount of money you are responsible for paying for repairs or replacement if you have to file a claim. The insurance company covers the rest of the costs up to your coverage limit.
Generally, the higher your deductible, the less you pay in insurance premiums. Increasing the deductible on your homeowners insurance from $500 to $1,000 could save you as much as 25% in regular premium costs.* Similarly, raising the deductible on your car insurance a few hundred dollars could save you 15% to 30% on premium costs.** How much you save depends on the rates offered by the insurance company and on how often, if ever, you have to file a claim and pay the deductible.
Finding the Balance
Determining the right deductible is, in part, simply a matter of doing the math. If the situation arises, could you easily access the deductible amount to repair damage to your car or home? To decide, look at:
• Your average monthly savings account balance.
• The amount of credit available to you.
• How much of your monthly paycheck is left after you've paid your bills.
Also consider your driving history when thinking of your auto insurance deductible. Frequent fender benders may mean that the higher premium saves you money. And homeowners need to keep in mind the different facets of homeowners insurance. Depending on your location, you may have a separate deductible for damage due to a windstorm, hail or earthquake.
Another factor that can't be reduced to black and white is your tolerance for risk. Raising your deductible is a more effective way to save money if you don't have to file a claim. How comfortable are you taking that chance? One way to make the risk more tolerable is to set aside money to cover the deductible should the need for it arise. Also, regular reviews of your insurance policies will allow you to make sure that you have the right coverage for your current situation.
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