Tuesday, September 25, 2018
High or low deductible: Which is the right fit?
Dupaco members Kelly and Aaron Otting play with their two children at their home in Worthington, Iowa. With the help of Dupaco Insurance Services, they were able to get more than five times their current home and auto insurance coverage while saving $730 a year in insurance premiums. Read more >
When’s the last time you reviewed your auto insurance policy? Taking time to do so will help you know whether your coverage is still the best fit for your needs and budget.
An important part of the process is determining your deductible.
The deductible is the amount you’re responsible for paying if you’re in a collision and held liable for it. The premium is the amount you pay each month to have the insurance.
Typically, the lower your deductible, the higher your premium will be. And the higher your deductible, the lower your premium will be.
Consider these tips when navigating the right insurance deductible for you.
Tips to find the right insurance deductible for you
Talk to your insurance agent
Everyone’s situation is unique. Your insurance agent can help you review your coverage, explore other options and play with the numbers to help you determine the best fit for you and your budget, says Brad Langan, insurance agent at Dupaco Insurance Services.
“If you’re not versed in insurance, you may not be getting what you think you are,” he says. “Different policies use different language.”
Case in point: Langan recently heard about a driver who accidentally left his keys in his car. The car was stolen, and the driver’s insurance won’t cover the claim. The fine print states an exception for leaving the keys in the vehicle.
“That’s why you want to make sure you get a good policy,” Langan says.
Know what your budget can afford
If you’re trying to save on your monthly premium by opting for a higher deductible, crunch the numbers
first. How financially sound are you? In other words: If you’re involved in an accident, can you afford to pay a high deductible?
“I’ve had clients get hit by other parties who didn’t have insurance. Their car was disabled, but they didn’t have the $1,000 to fix it,” Langan says. “Suddenly, you’ve got a car that’s useless.”
Calculate how long it would take to recoup your savings
Another calculation you should make: How much would you save—or not save—by going with a higher deductible.
Your agent can help you do this. But here’s an example:
You would save $50 per year in annual premiums with Option B ($200-$150=$50), but you would be exposed to a $400 difference in your deductible ($500-$100=$400). If you go with Option B and end up hitting a deer, it would take you eight years ($400/$50=8 years) to recoup the savings from the lower premium.
A general rule of thumb: If it takes you more than three years to recoup your savings, you might be better off with the lower deductible.
Research your vehicle’s value
Consider how much your vehicle is worth (Kelley Blue Book can help you determine this) when deciding your coverage and deductible.
Here’s why this matters: If your vehicle is no longer worth a lot, a high deductible probably doesn’t make sense. Your vehicle’s value is likely close to the amount you would have to pay to repair it.
Consider your risk
Your risk for filing a claim also comes into play. If you’re at a higher risk to make a claim—you drive during busy traffic times, etc.—you might be better off with a lower deductible. But if you have a “colorful” driving history, making your premiums more expensive, a higher deductible might be the more affordable option. Your agent can help you break down the numbers.
Factor in other coverage perks
There’s more to consider than just your deductible and premium, though. Does your policy cover towing? What about auto rental? If you only have one vehicle, and it becomes disabled in an accident, having the option to rent a vehicle at no cost to you can be priceless.
“There are certain things within an auto policy that you’ll want to have,” Langan says.
Automatically save for your insurance
Whichever deductible you choose, consider saving for the just-in-case expense with Dupaco’s You Name It Savings accounts. You can automatically and systematically set aside money for your deductible (and premiums) so the money is there when you need it.
By Emily Kittle