The Pros and Cons of Increasing Your Deductible

As an insurance policyholder, determining the right deductible amount is an important decision with both short and long-term financial implications.

While increasing your deductible lowers your premium payments, it also increases your out-of-pocket costs in the event of a claim.

Finding the optimal balance requires carefully evaluating your own situation and risk tolerance.

In this article, I will outline several factors to consider when determining whether or not to increase your insurance deductible.

For some policyholders, the premium savings may outweigh the higher potential costs of a claim.

For others, minimizing out-of-pocket expenses is a higher priority, even if it means paying higher premiums.

There are good arguments to be made on both sides, so you need to determine what is most important for your own financial well-being and peace of mind.

By walking through the pros and cons of raising your deductible, you can make an informed choice that fits your needs and priorities.

While there may not be a definitively “right” answer, you can feel confident you are making the best decision for your circumstances.

The options and trade-offs can be complex, but with a full understanding of how deductibles work and your own priorities, you can find the solution that optimizes value and protection.

What Is an Insurance Deductible?

As a homeowner, one of the decisions you’ll need to make regarding your insurance coverage is whether or not to increase your deductible.

A deductible is the amount you pay out of pocket before your insurance kicks in to cover any remaining costs.

What are the benefits of raising your deductible?

Raising your deductible can lower your monthly premiums since the insurance company’s risk is lower.

For example, increasing from a $500 to $1000 deductible could reduce your premium by up to 25%.

The higher your deductible, the more you can save.

You may not use your insurance for small claims anyway, so a higher deductible prevents paying premiums for coverage you don’t utilize.

Only claims that exceed the deductible are paid by the insurance company.

What are the downsides of increasing your deductible?

If you do file a claim, you’ll pay more out of pocket before coverage applies.

This can be an issue if you experience a large, unexpected expense.

Make sure you have enough in an emergency fund to cover the higher deductible if needed.

A higher deductible may not make sense if you frequently file small claims or live in an area prone to events like floods, fires or severe storms.

In these cases, the lower premiums may not offset the higher costs you’ll pay in deductibles.

As with any financial decision, determine what deductible level allows you to balance lower premium costs with your ability and willingness to pay higher out-of-pocket expenses if you experience a loss.

Review your options with your insurance provider to choose what makes the most sense based on your unique situation.

The Potential Pros of Increasing Your Deductible

As a homeowner, increasing your insurance deductible is an option worth considering.

A higher deductible means lower premiums, but also higher out-of-pocket costs in the event of a claim.

For some, the potential savings may outweigh the risks.

Lower Premium Payments

Raising your deductible from $500 to $1000, for example, can lower your premium by up to 25% annually.

The higher the deductible, the greater the premium discount.

Over time, choosing a higher deductible could save you hundreds per year in premium payments.

Prepare for Unexpected Costs

While increasing your deductible does mean paying more in the event of a claim, you can prepare by setting aside funds to cover potential costs.

Establishing an emergency fund for your home in case of unforeseen damage or disasters can help offset the higher deductible amount.

Not Ideal for Frequent Claims

If you frequently file insurance claims for your home, a higher deductible may not save you money in the long run.

The out-of-pocket costs for multiple claims could outweigh any premium savings.

It depends on your claims history and risk tolerance.

In summary, raising your home insurance deductible can be a strategic way to lower your premiums, but you must go in with eyes open to the possible trade-offs.

For many homeowners, a higher deductible is a calculated risk that pays off as long as you avoid or are prepared for major claims.

But if claims are common, the savings may be negligible.

Consider your situation carefully before making a change.

The Potential Cons of Raising Your Deductible

Raising your insurance deductible, while potentially saving you money on premiums, also comes with some downsides to consider:

Higher Out-of-Pocket Costs

If you do end up needing to file a claim, you’ll be responsible for paying more of the initial costs before your insurance coverage kicks in.

This means higher out-of-pocket expenses in the event of an accident or medical emergency.

For some, these higher costs could be a financial burden and deterrent to actually using your insurance when needed.

Coverage May Be Delayed

With a higher deductible, it will take longer for you to meet your deductible and benefit from your insurance coverage.

This means you’ll have to pay the full costs of any claims or medical expenses during that time period.

For chronic conditions or serious medical events, the delay in coverage could lead to much higher costs overall.

May Lead to Avoiding Care

The prospect of high out-of-pocket costs may lead some to avoid seeking medical care or filing insurance claims altogether.

This could be dangerous for your health and financial wellbeing in the long run.

Without proper care and treatment, minor issues could escalate into more serious medical problems.

Difficulty Budgeting for Costs

For some, the uncertainty of potential out-of-pocket costs with a high deductible plan can make budgeting and financial planning difficult.

Not knowing if or when you may need to pay high medical bills or insurance claims means you have to be prepared for unforeseen expenses at any time.

This can be tricky to budget and account for, especially those on a fixed income.

While raising your insurance deductible can have its benefits like lower premiums, there are significant downsides to consider regarding out-of-pocket costs, coverage delays, avoiding care, and budgeting difficulties.

For many, a higher deductible may not outweigh these potential cons and risks.

Carefully evaluating your own needs and financial situation can help determine if raising your deductible is the right choice.

How to Decide if You Should Increase Your Deductible

When determining whether or not to increase your insurance deductible, there are several factors to consider.

As with any major financial decision, it is important to weigh the pros and cons to find what option is right for your unique situation.

Pros of Increasing Your Deductible

By raising your deductible, you can lower your premium payments.

Insurance companies charge higher premiums for lower deductibles because they take on more risk.

Paying a higher deductible means you shoulder more of the upfront costs in the event of a claim, so the insurance company can charge a lower premium.

For those looking to reduce their monthly expenses, this can be an appealing option.

A higher deductible can also make you eligible for certain discounts.

Some insurance companies offer deductible rewards or discounts for selecting a higher deductible.

This is another way you may be able to save money on your premiums.

Cons of Increasing Your Deductible

The main downside of increasing your deductible is that you will have to pay more out of pocket in the event of a claim before your coverage takes effect.

If you file a claim, you are responsible for costs up to your deductible amount.

For some, especially those on a tight budget, higher out-of-pocket costs may not be feasible.

You also risk being underinsured if you raise your deductible too high.

If your deductible is a large portion of the total value of what you’re insuring, it may not provide as much financial protection as you need.

Be sure to find a deductible level that provides adequate coverage for your needs.

How to Make Your Decision

Analyze your budget and financial situation.

Determine how much you can afford for out-of-pocket costs and premium payments.

Find an option that balances your needs with your means.

Consider your risk tolerance.

If you rarely file claims, a higher deductible may be fine.

If you file frequent claims, a lower deductible may be better to limit your out-of-pocket costs.

Compare quotes at different deductible levels.

See how much you can save by raising your deductible and determine if the savings are worth the increased financial risk.

Finding the right deductible level for your situation can help ensure you have coverage when you need it at a price you can afford.

Frequently Asked Questions About Insurance Deductibles

As with any insurance policy, increasing your deductible amount comes with both advantages and disadvantages that are important to consider.

Cost Savings

The main benefit of raising your deductible is lower premium payments.

Insurance companies charge higher premiums for lower deductibles because they take on more risk, so increasing your deductible amount can result in annual savings of up to 30% on premiums.

The higher your deductible, the more you can save.

Less Use of Coverage

With a higher deductible, you will likely only use your insurance coverage for more significant, unforeseen events.

Smaller claims that you would normally file with a lower deductible may not meet your deductible amount, so you end up paying out-of-pocket.

This can reduce frivolous use of your policy and claims that may raise your premiums over time.

Higher Out-of-Pocket Costs

The biggest downside to increasing your deductible is that you will be responsible for more upfront costs before your insurance kicks in.

If an accident or medical emergency occurs, you will have to pay the full deductible amount before your insurance starts covering costs.

This can lead to high out-of-pocket expenses that may be difficult to pay, especially if money is tight.

Be sure you have enough in emergency savings to cover your deductible if needed.

Coverage Gaps

With a high deductible, some smaller claims may fall within the coverage gap between what you can afford to pay out-of-pocket and your deductible amount.

These costs would be your responsibility to cover, even though they are higher than what you would normally pay under a lower deductible policy.

Review policy details carefully to understand coverage gaps.

In summary, raising your insurance deductible can reduce your premiums substantially but also increases your financial responsibility.

Analyze your needs and budget to determine if the savings outweigh the risks of higher out-of-pocket costs before making a change.

The right deductible amount for you depends on your unique situation.

Conclusion

In conclusion, while raising your insurance deductible can save you money in the form of lower premiums, it also means higher out-of-pocket costs if you need to file a claim.

Only you can determine what level of risk you’re comfortable with based on your personal circumstances.

If you have significant savings and rarely need to use your insurance, the higher deductible may make sense.

However, if you have a tight budget or health conditions that require frequent medical care, the lower deductible is probably the smarter choice to avoid unaffordable costs.

Evaluate all the pros and cons to find the right deductible for your unique situation.

The peace of mind from the coverage you need at a price you can afford is worth the time to make this important decision.