When it’s time to invest in a new auto or homeowner’s insurance policy, your first consideration should be to determine how much your plan deductible will be. The amount of your deductible will directly affect the cost of your premium. Some individuals opt for a larger deductible in an attempt to get the most affordable home insurance or inexpensive automobile insurance. That said, you must estimate how much out-of-pocket expense you can afford if an accident or disaster occurs.
What Is a Deductible?
In short, a deductible is the amount of money you will be responsible for if you file a claim. Your insurance company will pay for a portion of the repair or replacement, but you will have to pay your deductible before your insurance will pay anything above that. Almost all insurance policies require deductibles to be paid each time you make a claim.
What Is the Purpose of the Deductible?
Your deductible serves two major purposes. While affordable home insurance or inexpensive automobile insurance is an attractive option for individuals, it is not considered one of the primary purposes of having a deductible. Instead, the deductible is designed to give insurance companies a financial break on how much money they are responsible to pay for each claim. On the other hand, the amount of the deductible may cause policyholders to consider whether they should file a claim. In some cases, it is cheaper for individuals to handle the payments on their own, which can reduce the risk of an increase in premiums in the future.
How Do Deductibles and Premiums Correlate?
Many people use the cost of premiums as a way to determine how large a deductible they will be able to afford in case of an emergency. Having a larger deductible often results in an individual paying lower premiums. The premium is often lower because insurance companies payout less for a claim. A higher deductible also reduces the chances of a policyholder making a claim, especially if the amount of the claim is less than the deductible. In general, policyholders want to continue paying the affordable home insurance and inexpensive automobile insurance they are budgeted for. On the other hand, a lower deductible will result in paying a higher premium.
How to Decide?
While some people make the decision based on their premiums alone, it is important to consider your options from other angles as well. For instance, will you be able to afford the deductible if you do need to make a claim? If you choose a deductible that is beyond what you could pay in the event of an accident or other incident, is it worth the lower premium that would result? Understanding what deductibles are and how they work is an important variable to consider when you are choosing your policy. While getting affordable home insurance and inexpensive automobile insurance is an alluring concept, it is best to make sure you can afford your deductible amount should any claims be filed for damage or theft. When it comes to insurance, lower premiums are not always the best option. If you are looking for the most affordable home insurance or inexpensive automobile insurance, contact us. We can help you choose a deductible option that best suits your budget and your needs.