When it comes to managing your insurance costs, opting for a higher deductible—what you pay out of pocket before your insurance coverage begins—can significantly lower your premiums. While this might seem risky, it’s a cost-saving strategy that incorporates a form of self-insurance, where you assume responsibility for smaller expenses in exchange for long-term savings. Understanding when and why this approach works can help you make an informed decision.
How Does a Higher Deductible Save Money?
Insurance premiums reflect the level of risk your insurer assumes. By choosing a higher deductible, you’re agreeing to take on more of that risk. This reduces the insurer's exposure to small claims, allowing them to offer you a lower premium. Over time, these savings can be substantial.
For example:
A homeowner with a $500 deductible might pay $1,200 annually for their insurance policy.
Raising the deductible to $1,000 could lower the premium to $950, saving $250 per year.
After just a few years, the premium savings can exceed the increased out-of-pocket costs you might face in the event of a claim.
The Concept of Self-Insuring
By selecting a higher deductible, you’re effectively self-insuring for smaller claims. This means you’re taking responsibility for covering manageable expenses (like minor damage to your home or vehicle) in exchange for lower monthly costs. Self-insuring isn’t a bad idea—it’s a strategic way to take control of your finances, as long as you plan for it.
When Self-Insuring Makes Sense:
You have an emergency fund to cover the deductible comfortably.
You rarely file claims due to a history of maintaining your property or driving safely.
You want to save money over the long term by reducing your annual premiums.
Self-insuring smaller risks allows you to reserve your insurance coverage for larger, more expensive incidents, maximizing the value of your policy.
Things to Consider Before Choosing a Higher Deductible
While the savings can be appealing, there are a few things to keep in mind:
Emergency Fund: Make sure you have enough savings to cover the increased deductible in case of an incident.
Claim Frequency: If you live in a high-risk area or anticipate frequent claims, a higher deductible might not save you money in the long run.
Balance is Key: Striking the right balance between a deductible you can afford and a premium that fits your budget is essential.
Is It Right for You?
Choosing a higher deductible and embracing the concept of self-insurance can be a smart way to reduce your insurance costs while taking responsibility for smaller risks. At Partridge-Zschau, we can help you evaluate your situation, weigh the potential savings, and decide whether this strategy aligns with your financial goals. Contact us today to review your policy, discuss self-insurance, and explore other cost-saving options. Together, we’ll create a plan that works for you!