When choosing your insurance policy, the deductible (the amount you pay out of pocket before your insurance kicks in) is a key decision. Many people naturally gravitate toward lower deductibles, and it’s easy to see why. If you’re dealing with a fender-bender or hailstorm damage, paying less out of pocket in the moment feels like the safer choice. But here’s the thing: opting for a higher deductible can often save you money in the long run. Let’s break it down.
Insurance premiums are the payments you make on a regular basis to keep your policy active. When you choose a higher deductible, you’re essentially agreeing to shoulder more of the financial burden in the event of a claim. Because of this, insurance companies reward you with lower premium payments.
For example, let’s say you’re currently paying $2,200 a year for your auto insurance with a $500 deductible. By increasing your deductible to $1,000, your premiums might drop to $2,000 a year. That’s a $200 annual savings. Over five years, you’d save $1,000 in premiums—enough to offset the higher deductible if you ever need to file a claim.
Another reason to consider a higher deductible is the potential impact of filing frequent claims. Submitting small claims for minor damage can lead to premium increases or even a non-renewal of your policy. When you have a higher deductible, you’re more likely to pause and ask, “Is this worth filing a claim?”
For homeowners, this is especially important. Let’s say your home insurance premium is $2,500 a year with a $1,000 deductible. If you increase your deductible to $2,500, your premiums might drop to $2,250 a year—saving you $250 annually. Now, imagine a repair costs $1,500. Instead of filing a claim and risking higher premiums or non-renewal, you cover the cost out of pocket. Over time, this strategic approach can keep your overall insurance costs more stable. Keep in mind, every situation is different, and that’s why working with a trusted insurance agent is so important.
Of course, there’s no crystal ball to predict when you’ll need to file a claim. If an accident or storm strikes, a higher deductible does mean paying more upfront. But in many cases, the cumulative savings on your premiums outweighs the one-time cost of a higher deductible.
Let’s revisit that earlier example. Imagine you’ve gone six years without filing an automotive claim. With the $1,000 deductible, you’ve saved $1,200 in premiums over that time compared to the $500 deductible plan. Even if you end up needing to file a claim, the savings will likely offset the higher out-of-pocket cost—and if you don’t file a claim, those savings are yours to keep. This same concept holds true for homeowner’s insurance as well.
Choosing the right deductible isn’t a one-size-fits-all decision. It depends on your budget, risk tolerance, and how much you’re comfortable paying out of pocket in the event of a claim. While there are clear financial benefits to a higher deductible, it’s crucial to weigh all the factors before making a decision.
Your local Loman-Ray agent can help you understand your options, run the numbers, and determine what makes the most sense for your unique situation. If you ever have questions about whether to file a claim, your agent is also the best resource to help you make a well-informed choice. Reach out today to start the quoting process and ensure your policy is tailored to your needs.
The above is meant as general information and as general policy descriptions to help you understand the different types of coverages. These descriptions do not refer to any specific contract of insurance and they do not modify any definitions, exclusions or any other provision expressly stated in any contracts of insurance. We encourage you to speak to your insurance representative and to read your policy contract to fully understand your coverages.
