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  • Writer's pictureDick Ostrander

The Insurance Deductible Dilemma

As we all know, a deductible represents the dollar amount that you must pay before your insurance company pays its portion of your claim. Given that, it would seem to make sense to carry a low deductible, but I say no.

Unless you know you are going to have a claim, you should always choose a deductible that is as high as you can financially manage, the higher the better. But, that said, you should also ask how much you will save on your premium at different deductible levels. The cost/benefit is much better for the person who has a higher premium or multiple vehicles. For example, a young driver may save as much as $300-$400 per year by raising their collision deductible from $500 to $1,000. However, a senior citizen with inexpensive rates may save as little as $50. A good insurance agent will help you decide what makes the most (dollars and) sense for you.

As far as your homeowner’s insurance policy is concerned, carrying a low deductible with the intent to make a series of small claims with your homeowner carrier is a great way to get yourself non-renewed and end up in the assigned-risk pool because of frequent claims. That’s when you find yourself in The Fair Plan high-risk pool, paying higher rates for several years, maybe longer. My advice is generally to take the higher deductible so as to keep your premium lower. The savings is guaranteed, and you may never even have a claim.

Another deductible pitfall to be wary of is percentage (%) deductibles on your homeowner policy. Typically, Fair Plan (assigned risk) homeowner policies and other policies that insure houses on or near coastal areas have separate wind deductibles, which work on a percentage basis. For example, your policy may say that in the event of a wind or hail claim, your deductible is 2%. That means that if your policy is written for $250,000, then your 2% wind deductible is $5,000. Ouch. I’ve even seen voluntary insurers use this wind deductible for houses here in Bellingham even though we’re many miles from the coast. Do yourself a favor and check your homeowner policy to make sure it doesn’t have a separate wind deductible. If it does, start asking questions.

On a good note, many of our auto-insurance carriers are now offering Deductible Dollars and other goofily named benefits to long-time auto-insurance clients. Let’s say you’ve been insured with a certain auto insurer for 2 or 3 years; many are now “banking” on deductible dollars for you to use in the event of a future claim. Typically, the most you can borrow in deductible dollars when you have a claim is $250. Still, it helps to reduce your real deductible from what is shown on your policy to a lesser amount.

And now you know a lot more about that pesky deductible.

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