Your insurance deductible is the amount you pay when you make a claim. You can save 10-40% on your insurance premium by increasing your deductible. The reason for the savings is that you are agreeing to take on more responsibility for losses to your property. If you raise your automobile insurance from $500 to $2,000, you are reducing their risk by $1,500, so as with investments, you get a premium for accepting more risk. This also eliminates the insurance company’s risk that you’ll make small claims that are less than your deductible, which is also helpful for you as you will stay claim-free for a longer period of time.
Before raising your deductible, you should ensure that you have the money available to pay the higher deductible should the need arise. This could be done either through emergency funds or at least an available credit line.
Insurance should only be purchased to cover financial losses that you cannot afford to pay for on your own. If you wouldn’t make a claim on your home insurance for $750, why have only a $500 deductible? Set the deductible to a level that you are comfortable paying, not only to the insurance company, but also to pay for repairs that are less than your new amount.
This strategy can save you quite a bit of money over your lifetime. If a situation ever comes up where you do need to make a claim, you will be covered from catastrophic loss and will only need to pay your deductible.
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Tom Drake is the owner and head writer of Canadian Finance Blog.
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