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.
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.
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.
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.
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!
This article is for informational purposes only and is not intended to stand alone as insurance or legal advice. Individual circumstances may vary, so when in doubt, contact Partridge-Zschau directly to discuss your specific needs.