Risk Management

Risk Management

Higher Deductibles – Are they worth it?


In these cost-conscious days, everyone is trying to save money wherever and whenever they can. It seems that people may especially look to their insurance policies as a place to realize some savings.

More customers are now requesting a reduction in the dwelling limits on their homeowners policy or a reduction in the policy's liability limits. Some customers are even requesting a reduction in the limits of liability on their auto insurance policies. In most cases, these types of requests are not wise ones. We cannot stress enough how much you have to lose if a liability judgment goes against you -- for example, in an auto accident or if someone gets hurt at your home.

A wiser and certainly more consumer-friendly way to save money on your insurance premiums is to increase your property deductibles. On a homeowners policy, going from a $250 to a $500 deductible may result in a savings of between 5-10% on the premium. We understand; we've heard customers tell us previously: "But if I have a claim, I can't come up with $500 at one time." The important thing for you to remember is this: you only have to come up with $250 more than you would right now (the difference between your current deductible and $500) -- not a big amount. And remember, with the savings you will experience in the premium, you will probably save that $250 in 3 to 4 years.

Higher deductibles on the physical damage section of your auto insurance are also a good way to save some money on the premium. Increasing your deductible from $250 to $500 on both comprehensive and collision can save you about 20 percent on these coverage lines. A $1,000 deductible may result in savings of up to 35 percent.

If you cannot take the big leap from a $250 deductible to $1,000, consider a graduated approach. We'd like to suggest going to a $500 deductible now and putting the premium you save into a "deductible fund." Then in a couple of years, you will have enough in that fund to increase the deductible to $1,000.

The point to remember is this: don't risk a lot in order to save a little.

The contents of this article have been reprinted with permission from International Risk Management Institute, Inc. (IRMI®). Copyright 2008, IRMI, Dallas, TX.