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If I had to choose the thing I most hate paying for it would be insurance, hands down. I know it’s important (in some cases it’s the law), but I hate the thought of paying for something I will hopefully never need. It doesn’t matter if it’s home, car, pet, travel, or life insurance. Those premiums are annoying as heck. Insurance is also confusing. Are you getting a good deal? Do you even have the coverage you need? What happens if that giant tree in your front yard crashes right through the middle of your house?

I am known to be a bit of a stress case, so knowing insurance will step in if tragedy strikes helps when worst-case scenarios flood my brain. Even so, I still hate paying for insurance!

Calculating Your Premium

When you call up an insurance company to get a quote, they run all sorts of complicated calculations to figure out how much to charge you. First, they are going to look at how risky you are as a client (i.e., do you have a history of car accidents, a medical condition, or an ancient house?) They want to know the chances you’ll be making a claim and how much that claim could potentially cost them. That part is out of your hands. You can’t change the past.

The part you do have control over is how much you pay out of pocket if you need to make a claim. That is your deductible. The higher your deductible, the cheaper your monthly or annual premiums will be, but the more you’ll have to pay upfront before the insurance pays up.

The Case for a High Insurance Deductible

Lowering your premium is a huge incentive to increase your insurance deductible. That premium is a guaranteed payment you’ll have to make regularly, whereas you’ll only need to pay the deductible if you have to make a claim. If your insurance company has online quotes, they probably have a little slider thing that lets you see how changing your deductible affects your premium. It can be super tempting to crank that deductible way up to pay the least amount possible. Unfortunately, that’s not usually the best answer.

The Case for a Low Insurance Deductible

On the flip side, you have the old peace of mind argument. Choosing a low deductible means not having to foot a hefty bill at a time when you’re already stressed the heck out. If you’ve ever been in a car accident, even a minor one, you’ll know what I mean. Making an insurance claim means that something terrible has happened. You might have other expenses that come up that aren’t covered by insurance; you might have other life events occurring that you hadn’t planned for. Who knows. The last thing you want it to have to go into debt because you set your insurance deductible too high.

In situations like that, a zero deductible plan will feel like a lifesaver. But is it the best option for your monthly budget?

Striking A Balance

Luckily it doesn’t have to be all or nothing. Most insurance companies will allow you to set your deductible to any amount you choose. Making it that much harder for you to decide!

So how do you choose?

Ask yourself how much you can afford at any one time. Find that magic number you’ll be able to pay up at a moment’s notice that will hurt a little, but not so much that it’s going to throw your financial plans into a loop. If you’re still stuck, then play this situation out in your head. You’re standing in the car repair shop, and they are running up your bill. The cashier tells you your insurance company has paid their portion, and you now owe nothing, $500, $1,000, or $5,000. You’re looking for the amount that makes you say ‘ugh, ok’ and not the one that has you thinking ‘shit, how am I going to pay for that?!

For me, that amount is $1,000. It’s what our deductibles are set to on our home, auto, and pet insurance. I’m never going to be happy to pay an insurance deductible, but that’s an amount I know we’ll be able to afford without setting us back. Our emergency fund can easily cover it, and it keeps our monthly premiums reasonable.

Factor In Additional Costs

Not all insurance covers everything. This was particularly true for us when we were claiming our dog’s chemotherapy treatments through our pet insurance. We had a $1,000 deductible we had to hit before they would start paying out, and even after that, they only covered 80% of the treatments. That meant we were also on the hook for that other 20%. For us, it wasn’t so bad because it wasn’t all at once. He went for treatments over months, so we had to pay small bills each time.

In other cases, you would have to pay that amount all at once. Let’s say instead of chemotherapy; your dog was hit by a car and required emergency surgery. That could run you $10,000, which would mean paying the $1,000 deductible but also an additional $1,800 (20% of the remaining $9,000.) That might be a worst-case scenario, but it’s something you need to consider when figuring out your insurance needs.

The same is true when you’re looking at auto and home insurance. Your auto insurance should cover all damage to your vehicle and other property. But if you are injured there can be caps on how much treatment you can receive. For example, in Alberta there are limits to the treatment you can receive for minor injuries from a car accident, and treatment may need to be pre-approved. If something happens to your home, you may not get 100% reimbursement for belongings that were lost or ruined. Replacement costs would fall back on you.

Understand Your Coverage

I know insurance isn’t exactly a fund subject, but you should take the time to understand your policies. Know what your plan covers, what’s excluded, and how much the insurance company will pay up if you make a claim. A good understanding will make it that much easier to decide the right insurance deductible. And never hesitate to increase or decrease it when necessary. If you have a sudden job loss, then it might be a good idea to lower your deductibles. It can be easier to budget in a higher monthly premium than have to come up with a large payment unexpectedly.

Even though we all hate paying for insurance, it’s a fact of life. Finding that balance between premiums and deductibles is a useful exercise for all of us.

Insurance is confusing and choosing the right insurance deductible for your situation is no easy decision. I'll help you break it down!

This post was proofread by Grammarly.

Image Credit: Jamie Liu

2 Comments

  1. There are even more factors when it comes to Insurance. How hard will it be to collect on a claim? How much will my insurance go up if I make a claim. I have read that some condo owners insurance is jumpimg dramatically because of many claims in the complex. Many claims make Insurance Companies nervous of that building. All the claimsfree owners have their renewed insurance higher also as a result of the Building Complex–having a bad claims History.

    • Sarah Reply

      It’s true, there are a lot of factors to think through when choosing insurance. The deductible is just one part of it.

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