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Insurance Advisors' Newsletter
April 2016

Deductibles - The Right Way
to Set Them

By Susan Cormier for Insurance Advisors

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IA Team

The question of deductibles is often discussed when we meet with clients who are purchasing new insurance or revisiting their existing policies. 

Some clients want to have a high deductible so they can reduce the size of their insurance payments. Others want a low deductible because they don’t want to incur unexpected expenses during the year.

We recommend talking to Insurance Advisors, but we’re including some basic information below in case you want to take a preliminary look at this issue.

First, the deductible is the amount of money you pay toward a claim before the insurance company steps in to help. For example, let’s say your home was vandalized to the tune of $3,000. If your deductible is set at $500, you would pay that amount and your insurance policy would cover the rest (up to your policy’s limits).

You might think it’s an “easy” decision to set a low deductible, so you pay as little as possible when you have a claim. But that is not always the best route.

Let us explain. Your deductible has an inverse relationship with your premium. A low deductible means higher premiums. A high deductible means lower premium payments. 

Insurance companies like – and tend to reward - customers with high deductibles because they file fewer claims. If you have a $1,000 deductible and run into a pole in a parking lot and cause $400 worth of damage to your back fender, you would pay for the repairs yourself. 

Policyholders who pay for these types of minor incidents will not have problems renewing their insurance and may even get a discount for remaining “claims-free” for a certain number of years.

Those are the advantages to a high deductible. Here’s a word of warning. Never set your deductible higher than the amount you’d be comfortable paying if you have to file a claim. It just doesn’t make sense to devastate your finances by choosing a deductible that’s too high. After all, that’s what insurance is for – to protect you and your assets.

At Insurance Advisors, the bottom line is that saving money at the risk of hurting yourself later isn’t a wise choice. But if you can manage it, choosing a high deductible can work to your advantage.

Again, if you’d like to discuss your individual situation, please call Insurance Advisors at 720.210.9898.

The Hartford

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