Insurance

Increasing Insurance Deductibles To Save Money

This is a guest article by Ryan Larkin.  If you are interested in contributing to Debt RoundUp, please follow our guidelines.

Increase Your Deductible

Photo via trenttsd

As you may be aware, an insurance deductible is an upfront fee that you need to pay to the insurance company before you can claim and have them pay for the expenses covered by the insurance policy. For instance, if you have an auto insurance plan or a homeowner’s insurance coverage, you need to pay the deductible upfront for every claim you are staking. However, for a health insurance plan, the deductibles need to be paid on an annual basis.

Take this scenario for instance; you have insurance coverage by virtue of paying the necessary premium. However, you are forced to pay upfront for the insurance deductibles from your pocket when you make an insurance claim. However, what you tend to forget is that the deductibles help reduce the overall cost of insurance. If there were not insurance deductibles charged, the companies will be besieged with small claims that they would have to settle and will have no other go than to raise the premium rates to make up for this. This increased cost has to be invariably borne by the customer.

Is this the solution to saving money on insurance? Though this may appear to work well, because if the deductibles are increased, your premiums – the amount you pay at regular intervals, either monthly, quarterly, half-yearly, or annually will automatically get reduced. However, the very purpose of insurance, which is to help tide over an unforeseen crisis, seems to be defeated when you try to save money by increasing insurance deductibles. Let’s face it; you don’t opt for health or homeowners insurance just because you want to spend money or to save on tax. You do it because you can’t predict when you are going to need that money. Without insurance to bail us out, most of us will face financial ruin when confronted with unexpected calamities.

The answer is to have an emergency fund that you can draw upon, if you can manage to have such a fund, you could draw from that to raise the deductibles for your insurance and save money in the long run. However, why have to raise the deductibles at all, you may ask? You probably don’t need this if you have enough money stashed away. If you are really wealthy, you probably won’t have to have insurance cover at all except for the mandatory cover required by law.

Statistics show that an average homeowner has to make an insurance claim once in about 9 to 10 years. That being the case, you will certainly be saving more money if you increase your insurance deductibles. The chances are there for an unforeseen need for you to claim due to an unexpected fire that burnt down your home or some other such calamity. In such cases, your saving would have become meaningless. However, going by the principle of probabilities, it is most unlikely a thing to happen.

Hence, increasing deductibles on your insurance premium is probably the smartest move you can make as far as saving money is concerned. However, it is important to create the emergency fund, by forced savings or trying to earn extra money through some part time job, so that you have enough to pay towards the extra expenditure on increased deductibles.

This guest post is brought to you by Ryan Larkin of Broadbandproviders.com, a site that offers savings and current information on broadband internet and Broadband in my area .

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14 Comments

  1. December 13, 2012 at 11:12 am — Reply

    Our deductibles are fairly high as we just can’t justify having them lower in light of the savings. Thankfully we have a pretty good insurer that we have all of our coverage through which gets us lower rates as well.

    • December 13, 2012 at 11:13 am — Reply

      I need to work on raising my deductible, but I have the type of luck that will probably punish me for that decision.

  2. December 13, 2012 at 3:58 pm — Reply

    I just actually switched plans to new health insurance provider and went from a $1500 deductible to a $3500 deductible. The difference in cost was huge, I went from $850 to $450 a month to cover me and my 3 kids.

    • December 13, 2012 at 4:24 pm — Reply

      That is a big cost savings. You would have save that money just in case you needed it for any medical issue.

  3. December 13, 2012 at 4:29 pm — Reply

    We’ve asked our company and if we move up to a $1000 deductible the savings weren’t that much so we left it at $400. We have everything through our insurance company and Mrs.CBB has been with them for years so they are good to us. I guess it all depends on your company and the ratings etc. Great Post!

    • December 13, 2012 at 4:56 pm — Reply

      Yeah, that is the other scenario, sometimes it is not worth trying to increase the deductible. Thanks for sharing Mr. CBB!

  4. December 13, 2012 at 6:52 pm — Reply

    This is a sensitive subject for me as I have a $5000 deductible on our family health insurance plan. I’m glad to have insurance. I am just frustrated by the fact that my deductible went from $2500 to $5000 in only three years.

    • December 13, 2012 at 7:15 pm — Reply

      All I can say is wow Holly. That is a very high deductible. My parents deal with the same issue due to them both being self-employed.

      • December 25, 2012 at 5:52 pm — Reply

        Grayson, same with my parents. Self-employed and annual health insurance premiums have doubled in the last 3 years, AND my parents are very healthy. No medical issues whatsoever. Additionally, they are with Kaiser in California, which is a not-for-profit. So much for the “Affordable Care Act”. They should have made the complete title: Affordable Care Act If You Don’t Have Coverage Now, Unaffordable Care Act If You Do.

        • December 25, 2012 at 6:07 pm — Reply

          It is a true problem. Self-employed people should not have to pay that much money for health insurance. It is crazy!

  5. December 13, 2012 at 9:47 pm — Reply

    There is a lot of times I have tried raising my deductibles but it made so little difference it wasn’t worth it.

    teamworkcounts.com can show you have to save some real big money on your cell bill you can even get it for free.

    Insurance can also be greatly lowered on Car and home by having excellent credit so make sure you check you credit and clean it up if you can. This is the best way to save a ton on insurance costs.

    • December 13, 2012 at 10:52 pm — Reply

      Sometimes it is not going to work in your favor to raise your deductible, it depends on the company you are with.

  6. December 14, 2012 at 4:15 pm — Reply

    We have high deductibles on both our health and auto policies; The payments are significantly less than what we paid with lower deductibles. The way I see it, that is what an emergency fund is for; just in case we need money for unforeseen events like car accidents or health problems. It has worked out well for us the past couple of years.

    • December 14, 2012 at 4:16 pm — Reply

      I agree Deacon. Thanks for stopping by and sharing your opinion.

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