Deducing deductibles? Elementary, my dear Watson!

To determine the deductible that provides the greatest value for your insurance dollar, we believe Sherlock Holmes might have made a great insurance agent. Although insurance can sometimes seem complicated, choosing the best deductible for your personal situation can prove an elementary decision.

Deductibles serve a clear purpose. For a given loss, the deductible is the amount you pay out of pocket. The insurance coverage will pay the remainder of the covered loss, up to the available policy amounts. Using deductibles properly can reduce premiums by eliminating smaller claims that most people would never expect their policy to pay anyway. This keeps coverage available as your safety net for large, possibly catastrophic, claims.

How do you decide what’s “small.” How much would you be willing to pay in the event of a claim; and at what point would you want insurance to take over? For some policyholders, especially in tough economic circumstances, this “out-of-pocket” amount might be very small. Recognizing this, the usual Homeowners insurance deductible for many years has been between $250 and $500. The same amounts hold true for Auto insurance.

However, suppose you feel you could comfortably handle a $1,000 or $2,500 deductible? Paying losses lower than those amounts will reduce your premiums — but by how much? Will it put enough money back in your pocket today to make it worthwhile if you file a claim tomorrow?

Many carriers are now offering disappearing deductibles. These are a nice feature as each claim free year you have, your deductible is reduced until it is eliminated altogether. The one problem with a disappearing deductible is that it’s not transferable to another carrier. Let’s say you have been with Company A for several years and your deductible has reduced to $0.00. If Company A has a rate increase or several over a couple years and we find you a  better rate with Company B, you need to be aware that your new policy with Company B will start all over with a full deductible. The value of the $0.00 deductible needs to be considered before you make a switch.

Before you decide, let us show you what the savings would be. Give your account manager a call about your deductibles. If you’re willing to take on a bit more risk today, we can put some money back in your pocket. As Holmes might have said, “It’s a simple premium deduction, dear boy.”

Please read our related article “Things to consider before filing small claims” for more information about deciding when to file a claim that exceeds your deductible.


Some content used with permission from ISOMIS Coroporation.

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