Saving Money on Insurance - Deductibles

Sadly accidents are a fact of life, and therefore so is insurance. Most of us do a pretty good job shopping around for the lowest rate, but is there more we could do to save ourselves some money, without reducing our coverage?

Most of us have an aversion to risk, and for that reason we usually over estimate the likelihood of accidents and incidents in our daily lives. The constant coverage on the news and prime time TV of car accidents and trouble throughout the world don’t help either.  But you’re probably asking yourself, “how does this apply to insurance deductibles?”. The answer is pretty clear.

Every year we are faced with the question of whether we should renew our insurance coverage with our current providers, or seek out a better deal eslewhere. In addition, it’s become more and more common to be offered insurances at the point of purchase these days, particularly for expensive electronics. In both circumstances, you’re left to decide what coverage you need, what kind of a deductible you want, and in some cases, how long you want to be covered against certain perils. While the answers to most of these questions are deeply personal, deductibles are an area where you can  apply some basic math to help guide your decision.

The decision ultimately comes down to how often you expect to need to use your insurance coverage  of the insurance companies to make that data public. So instead, we’re left to try and quantify a variable that we really don’t know much about. If I were to ask you how often you expected you might be in a car accident for example, you’d likely have a hard time coming up with a figure. Even if you did come up with a number, could you point to any evidence to support it?
today cover a loss. This would be easy to decide if we had easy access to the data associated to the use of insurance, but I’d suggest that it goes against the business model,

So what are you left to do? Well, go online, call in, or talk to your insurance broker, and see what the cost differences are for the variable deductibles that are available to you. Once you’ve determined how much you can save yearly, by increasing your deductible, divide the increase in the deductible by the yearly cost savings, and that will give you the number of years you’ll need to be accident free in order to come out ahead. In some circumstances you find that it can make sense if you expect to remain accident free for only a few years. In other cases, you would need to be accident free for 10 or more years.

Once you’ve determined your time frame, it’s time to consider how realistic it is for you to avoid an accident for that long. At the end of the day, your driving ability is only one portion of the equation. You’ll also need to consider how much you drive, where and at what times you tend to drive, any other drivers who may drive your car under your insurance,  etc. Only then can you realistically decider if increasing your deductible is potentially going to save you money.

As you can see, there is no hard and fast rule for selecting a deductible. The right answer for you is dependant on a number of factors, and this is a decision that you’ll have to review at least once a year. Since your insurance likely renews once a year, that is a great time to re-examine your coverage, your insurance provider, and of course your deductibles.