Insurance premium costs can be high and many look for ways to save money on policies. Agreeing on a higher deductible on coverage is a common way of cutting costs. Why are premiums cheaper if deductibles are higher? Is this a sensible move to make?
What is an Insurance Deductible?
Most insurance policies will list one or more deductibles in their coverage. This is the amount of money that the policy holder will need to cover in the event that they make a claim.
So, for example, if a claim is made on a homeowner’s policy for $1,000 and the deductible is listed as $250 then the insurance company will pay $750. The deductible of $250 needs to be covered by the policy holder.
What Happens if the Deductible is Increased?
This can be a simple and effective way of getting lower cost premiums. If an insurance company agrees to a higher deductible then they are likely to give a discount in return. An individual agreeing to take more financial responsibility for a claim will cut the costs to the company as they will have less to pay out.
Do All Insurance Policies Offer Lower Premiums for Higher Deductibles?
Although this is common in the insurance world, it may not work with every policy. Low cost and discounted policies, for example, may already work on relatively high deductible costs. In this case it may also not be cost effective to try for an increase.
In many cases percentage discounts will be openly advertised or offered when an individual looks into premium costs. These may rise according to how far they are willing to increase their deductible. In other cases the discounts may need to be asked for.
Is an Increase in Insurance Deductible Worth it?
Increasing deductibles can save money on premium costs. If the individual rarely or never has to make a claim then this can be a good thing. This may, however, need careful thought. If a claim is made and a higher deductible has been chosen, then the policy holder has to be able to afford to pay for their side of the deal.
Keep in mind, however, that even a small increase can result in cheaper coverage. Those with some savings to fall back on or those that can put some cash aside in case it is needed may be able to raise their deductible to higher levels to gain increased discounts.
There are also other ways to cut the costs of insurance. Those looking for cheaper auto insurance could, for example, use brokers to help find the best deal and could look at other ways of minimizing premium charges. Shopping around to compare general insurance costs online may also help maximize potential savings.
Carol Finch - Carol Finch is the Topic Editor for Retirement Planning, Budgeting, E-Commerce & Technical/Business Writing on Suite101.
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