This oft asked question by clients when reviewing insurance coverage does not have a right or wrong answer. In most cases the deductible applies to property coverage. On a rare occasion there can be deductibles that apply to liability coverage.
One of the reasons for the deductible discussion when buying auto insurance, home insurance or commercial property insurance, is the deductible has a direct effect on the insurance premium you pay. Logically the higher the deductible the lower your insurance premium.
The decision the insurance buyer has to make is – Does the lower premium make sense for me if or when I have a claim? Take my 2004 Lexus as an example. Common deductibles for comprehensive & collision coverage are $50 and $500 respectively. My combined premium for these 2 coverages is $141 per year. Increasing my deductibles to $100 comprehensive and $1,000 collision saves $29. Since I have not had an at fault accident in many years the cumulative savings may be worth the added risk.
A case can be made for having the same deductible for both comprehensive and collision coverage for three reasons:
- A higher comprehensive deductible will save more money on the insurance premium
- In some claim situations the argument of whether the claim is a comprehensive or collision loss disappears because with the same deductible it doesn’t make any difference.
- A common comprehensive claim is damaged windshield. If it can be repaired the deductible is waived.
However, you must have the means to pay the deductible should a claim occur. Some people choose high deductibles to save money on the insurance premium only to have a claim and then not have the money to have their auto repaired.
Another reason to choose a higher deductible is smaller claims will not be submitted to your insurance company and this will result in premium savings over time. For example, many Home insurance policies offer claims free discounts. Raising your home insurance deductible from $250 to $1,000 could save $100 or more on the premium. And not filing minor claims with your insurance company results in further discounts.
An extreme example of a high deductible is the person who was required by his mortgage company to have $27,000 of flood insurance on a building. He bought the flood insurance but chose a $50,000 deductible. While he may never be able to submit a claim, he has complied with the mortgage requirement.
Now it’s time for you to get out your insurance policy and contact me to discuss your deductible.