Insurance Word For The Day

DEDUCTIBLE: The amount of loss paid by the policyholder. Either a specified dollar amount, a percentage of the claim amount, or a specified amount of time that must elapse before benefits are paid. The bigger the deductible, the lower the premium charged for the same coverage.

The deductible is an amount of money that you must pay toward the repair or replacement of the insured item. For instance, if you have a $500 deductible for collision coverage on your car, and you run into a ditch, you will be responsible for the first $500 in repairs.

The higher your deductible is, the lower your insurance cost will be. It is important to remember, however, that your deductible should not be more than you can easily write a check for on any given day. If spending $500 to fix your car tomorrow would take groceries off the table, or make the rent late then you should opt for a lower deductible. You cannot afford the risk.

I often suggest to my clients that they write a check for their deductible amount today. We can put it in a high yield savings account and then add to that account automatically over time. As the balance on the account rises we can raise the deductible too! With this strategy a client never finds themselves without the funds needed to meet a deductible, and they keep their insurance costs as low as possible.

Another strategy is to choose a policy option with a deductible credit or reward. As you earn more deductible credit, you can raise the deductible. A policy with a $1000 deductible and $500 in deductible credits is often less expensive than a policy with a $500 deductible, and yet the cost out of pocket after an accident is the same!

If you would like to discuss strategies for managing deductibles and insurance costs please call me at 509-892-9139 and we can do a review of your policies.