01Does Increasing the Deductible Really Save Money on Insurance?
Raising your deductible will save some money on your insurance costs, however, the amount of money you save may not be what you think. Your insurance deductible will directly affect how much you get paid in a claim but can save you hundreds and thousands of dollars in insurance costs if you increase your deductible using the right strategy.
Here is everything you need to know to figure out if choosing a higher deductible will save you money and how much you can expect to save.
Should You Increase Your Deductible — Quick Answer
If you have the money on hand and are willing to pay for damages resulting from a claim, then you can increase your deductible to the maximum amount you're financially able to afford if something happens right now and you have to pay immediately. Whether it is $500, $1000, $5000 or more than the minimum deductible, if you are financially comfortable, then take the savings your insurance company will give you and start saving money. That's the short answer, but unfortunately, if you are researching this topic, you may need a little more information than that, so let's dive into whether or not raising the deductible makes sense for you and how to use a higher deductible to save money.
Help to Decide if You Should Increase Your Deductible
This is an in-depth overview to help you understand everything you need to know about the impact of increasing your deductible as well as how it can cost you, or save you money short and long term.
Where to Find Your Deductible Information
Let's start with the basics about insurance deductibles; first, you need to know how much your deductible is currently. You will be able to find the information of how much your deductible is on the declaration page of your insurance policy. Sometimes different coverages, like earthquake coverage, water damage or flood may have different deductibles, so don't forget to explore the opportunities to save money from the different deductibles on endorsements or other areas of your policy as well.
What You Need to Think About Before Increasing Your Deductible
The toughest thing about insurance is that the less money you have, the more important it is to have insurance to protect you if something goes wrong. If you are struggling to come up with money to pay for your insurance, you may want to think twice about increasing your deductible.
3 Key Items to Consider When It Comes to Making a Decision About Increasing Your Deductible
- The actual cost of your insurance. An increased deductible provides a percentage discount off the cost of the insurance. If you only spend $300 on your insurance, that percentage may be very minimal if you compare it to the impact on you financially in a claim. For example, do you really want to pay $500 or $1000 in a claim to save $30 a year? What about if you save $100 in a year? The savings make a big difference. You need to do the math on it to see if it makes sense. The higher your insurance costs, the more you will save by increasing the deductible because the discount for a higher deductible is usually a percentage.
- What you have your insurance for. If you are in a financial position to handle paying for your own small losses, in a way you are "self-insuring" for the amount of your deductible. If you are the kind of person that would never make a claim for under $5000 on your home or under $1000 on your car because you can afford to pay for it yourself, then a higher deductible makes a lot of financial sense because you won't be claiming anyway. If you got hit with a small loss, but you would not have the money to pay for a higher deductible, then you're better off to pay a few dollars more in insurance a year so that you are financially protected and choose a deductible you can afford to pay. Once you start to build some savings, you should then look at increasing your deductible to an amount you could afford in an emergency.
- How often you make insurance claims. If you think you will never have to make an insurance claim you can take a risk by increasing your deductible, but keep in mind the amount of the deductible represents the direct financial impact you are willing to take on personally and pay for yourself if a claim happens.
If you already have a history of making too many insurance claims, there is a good chance you are already paying a lot of money for insurance. Making more claims when it is not necessary will hurt you. Therefore taking a higher deductible to avoid making smaller claims may pay off. You should always negotiate with the insurance company when you are paying high premiums to see how you can find a better price.
If you never make insurance claims and can afford a higher deductible if a claim does happen, then you should seriously consider increasing your deductible because, for every year you didn't make a claim, that extra money from taking a higher deductible could be in your pocket instead of the insurance company's.
For example, if you took a higher deductible of $1000 and saved $100 off your insurance per year, for the past 5 years. You haven't had a claim, you just made $500. The money adds up.
Spending Too Much on Insurance? Use a Higher Deductible to Reduce Costs
If you are looking for ways to save money on insurance because you feel you are spending too much on something you never use, then increasing the deductible makes a lot of sense.
How to Figure Out Exactly How Much You May Save by Increasing Your Deductible
In this list, we will cover a few key areas that will help you figure out if raising the deductible makes sense for you so you don't make a costly mistake. This is what we will cover to help you decide:
- What Is the Insurance Deductible and How It Works in a Claim
- Before You Increase Your Deductible Figure Out How Much You Can Afford
- Can a Deductible Waiver Clause Help — What Is It?
Don't make the mistake of increasing your deductible to save a few dollars a month before considering the long-term implications.
02How Much Can Raising the Deductible Lower Your Insurance Costs
What's the Discount for Increasing Your Deductible?
Depending on how high you increase the deductible, you could save an average of anywhere from 5%-10% on your premium to start. The higher you increase your deductible, the more advantageous it becomes.
If you increase your car insurance deductible from $200 to $500 on the collision and comprehensive coverage, you may save 15-30% with some companies according to the Insurance Information Institute. If you go up to $1000, this could potentially save you 40%.
The same type of structure could occur in home insurance, where increasing your deductible to $1000 would really start showing significant savings and lowering your insurance costs somewhere in the ballpark of 20% or more, depending on the insurance company.
A higher deductible will result in a lower premium.
Are You Going to Save Thousands of Dollars by Raising Your Deductible?
You might save thousands if you strategically increase your insurance deductibles, don't make small claims, and if you are lucky to have no claims over time.
The bottom line is that you have one important factor to consider: the higher you increase your deductible, the more you pay in a claim; the big question is what can you afford and what will save you the most money long term.
If you insure yourself for 5 or 10 years and have no claims while taking advantage of a higher deductible, then you may save thousands of dollars on insurance. However, it's if you have a claim that the cost/savings balance will come into play.
03Before You Increase Your Deductible, Figure Out How Much You Can Afford
Increasing the Deductible to Save Money on Insurance
Whether you are looking to save money on home insurance, condo insurance, car insurance or health insurance, there are always ways you can maximize your savings. Increasing the deductible is the go-to way of saving money in the easiest way right now. Beware that although it will immediately save you money on your premium, increasing your deductible may cost you money on a claim or car accident long term. The reason saving money by increasing the deductible works well for one person, and maybe not as well for the next is because it has a lot to do with your personal risks and financial capability.
How Much Can You Afford to Raise Your Deductible?
If you have access to enough money to cover the deductible in the event of an emergency, then you can probably afford that amount as a deductible. Every year you don't have a claim or a car accident, you can save the money you would have otherwise paid when you had a lower deductible. This can add up to 40% of savings in your insurance costs or even more if you look at increasing deductibles on both your home and car policy. If an average homeowner only has a claim every 9 years, that could be 9 years of paying 40% less. These savings add up and might more than pay for the increased deductible when or if you ever do have a claim.
Insurance Savings Tip:
When you insure your home and car with one insurer, and you have a claim that affects both, you may only have to pay one deductible. This can save you money in a claim too!
Example of Taking a Higher Deductible With Negative Consequences
Don't take a deductible limit you can't afford. For example, you take a higher deductible of $1000 and save $100 a year on your insurance cost. That's less than $10 of savings per month. You're happy because you see it as saving $100 a year. You don't have a claim for 5 years, save $500 overall. Then, in the 6th year, you have a claim, you've saved the $500 but still don't have the money to come up with the $1000 deductible and can't get your claim settled quickly because you're scrambling to come up with the money. Not only are you in the middle of a stressful insurance claim, but you're worried about coming up with money again. You may have been better off paying more for the lower deductible until you could afford it to get the help you need when a claim happens.
04Other Ways to Save Money on Your Insurance
If you are still looking for ways to save money on your home insurance, you may want to check out your home insurance coverage options and see if you have the right policy for your needs. Insurance companies are very competitive when it comes to getting or retaining business; sometimes it might pay to shop around for your insurance or negotiate with your car insurance or home insurance company.
Your Insurance Policy Should Change With Your Needs
An insurance company that was well suited to your needs 5 years ago may not be the best company to insure you now.
Sometimes it's worth paying a penalty with one insurance company to get a better insurance deal than with the new one. Other times, it is just a matter of calling and telling your insurance company you're ready to shop around, and they may come up with some new ideas on how to save money on your costs.
Learn About Your Deductible Waivers
Deductible waivers are a feature hidden in insurance policy wordings that may save you a lot of money. Understanding when the deductible waiver will apply may make you feel better about taking a higher insurance deductible.
The deductible waiver on a home insurance or condo insurance policy is a clause that waives the deductible in the event of a large loss.
Every insurance company will take a different approach on whether they offer a deductible waiver. Ask your insurance representative if there is a deductible waiver in your insurance policy wording and at what point it kicks in.
For example, some policies might have a deductible waiver for losses over $10,000. Other policies may have a very high threshold before deductible waivers kick in, like major claims or losses over $50,000.
Home Insurance Deductible Waivers for "Free"
Understanding when your insurance company will waive the deductible in a claim may make you more comfortable with taking a higher deductible, especially if you are really only insuring yourself for a major loss like a fire. The best part is when it's included in the policy wording, it's "free".
Deductible Waivers on Car Insurance
Car insurance policies sell deductible waivers, but these generally increase your insurance cost since you pay for the waiver. The waivers in home and other residential insurance policies are usually built into the wording and would normally not have additional charges. Most people don't look at this when they purchase a policy, but the point at which the deductible is waived could give you thousands more in a claim and provide you with opportunities to save money on your annual costs.
Use Your Increased Deductible Savings to Save Money
If you decide you can afford to increase your deductible and save 10% or 40% (or more) on insurance, consider taking the savings you are getting off your insurance costs and put it in an emergency fund bank account. As the money grows, you can increase your deductible to higher levels you can afford, and then save even more.
If you never have a claim and never have to pay that higher deductible this is all found money in your pocket. If you end up needing to use the money for your deductible in the long term, you won't get stuck. It's a win-win for you.
A Little Research on Insurance Options Will Save You Money
Before you cut coverages on insurance try all your options, including bundling all your insurance with one company if they can give you a deal. Some insurance companies even offer discounts when you go on monthly payment plans through your bank account. Ask your insurance representative to assess your insurance choices and recommend some options to save money. Always do your research, you may end up paying less and getting more by switching to a new insurance company with a little work.