Author Topic: Raising deductible for slightly lower premiums  (Read 2608 times)

themagicman

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Raising deductible for slightly lower premiums
« on: September 09, 2015, 11:58:42 AM »
What level do people typically think it is not worth it to raise their deductible further? I just got my homeowner's insurance renewal and it will be $415. I am able to lower that by $60 a year if I go from a $2,500 deductible to a $5,000. Do you all think that this would be worth it? The $5,000 would not be a problem for me to pay but trying to decide if it is worth the savings if I do ever end up filing a claim. What do you all think?

Gone Fishing

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Re: Raising deductible for slightly lower premiums
« Reply #1 on: September 09, 2015, 12:05:36 PM »
You would need to go 42 years without a claim to come out ahead. I would prefer numbers closer to 5 or 10 years. 

seattlecyclone

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Re: Raising deductible for slightly lower premiums
« Reply #2 on: September 09, 2015, 12:14:05 PM »
The real number is less than 42 years, since the savings would compound.

Remember the cardinal rule of insurance: the insurance company makes money. They have more data than you about how likely a loss is. You can be sure that their average cost to provide the extra coverage is lower than what they're charging you for it. If you can afford the extra $2,500, you should raise your deductible. It's more likely to be a better decision than not.

Gone Fishing

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Re: Raising deductible for slightly lower premiums
« Reply #3 on: September 09, 2015, 12:24:39 PM »
The real number is less than 42 years, since the savings would compound.

Agreed, and could also be additionally shortened by future rate increases.  My point being that it is quite a long time to go claim free, even if my math was a bit simple. 

The OP could also evaluate his personal risk factors outside of typical insurance underwriting to help arrive at a conclusion.  Do the neighborhood kids regularly play on his kid's swing set? Does he have large mature trees overhanging the house?  Does he throw big drunken parties on the weekends?     

AZDude

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Re: Raising deductible for slightly lower premiums
« Reply #4 on: September 09, 2015, 01:18:15 PM »
Good chance that anything over $5000 would be severely expensive and thus more unlikely. Smaller stuff like tree roots breaking your main water pipe, etc... which would be in the $2000 - $5000 range are probably the things that you end up filing a claim over.

I would probably leave the deductible as-is, since $60 a year is $5 a month. You will not miss the $5, and you gain cost-certainty in the future.

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Re: Raising deductible for slightly lower premiums
« Reply #5 on: September 09, 2015, 06:47:42 PM »
...
Remember the cardinal rule of insurance: the insurance company makes money. They have more data than you about how likely a loss is. You can be sure that their average cost to provide the extra coverage is lower than what they're charging you for it. If you can afford the extra $2,500, you should raise your deductible. It's more likely to be a better decision than not...

For $60 a year, I would not take the chance.  Sure, the odds are that you won't have a claim triggering the higher deductible.  But "the odds" are statistics.  They work fine when you pool the experience/risk of a few thousands of people.  But you are ONE.  Get unlucky and have just one big claim happen and the saved $60 a year in premiums won't mean diddly.

seattlecyclone

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Re: Raising deductible for slightly lower premiums
« Reply #6 on: September 09, 2015, 08:18:05 PM »
...
Remember the cardinal rule of insurance: the insurance company makes money. They have more data than you about how likely a loss is. You can be sure that their average cost to provide the extra coverage is lower than what they're charging you for it. If you can afford the extra $2,500, you should raise your deductible. It's more likely to be a better decision than not...

For $60 a year, I would not take the chance.  Sure, the odds are that you won't have a claim triggering the higher deductible.  But "the odds" are statistics.  They work fine when you pool the experience/risk of a few thousands of people.  But you are ONE.  Get unlucky and have just one big claim happen and the saved $60 a year in premiums won't mean diddly.

The saved $60/year premiums will cost me at most $2,500 in the event of an incident. When the odds are in my favor and the cost of losing is that manageable, I'm happy to take this bet. You're free to choose otherwise.

Paul der Krake

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Re: Raising deductible for slightly lower premiums
« Reply #7 on: September 09, 2015, 08:59:53 PM »
This isn't related to OP's particular question, but keep in mind that for health plans, employer subsidies are a major factor since on a good plan they pick up about 80-90% of the premium.

It's a no brainer to get the $2,000 deductible plan when it's at say $10,000 of premiums, versus a $1,250 deductible at $15,000 of premiums. If the subsidized cost is $1,000 vs $1,500 AND you think you might be close to hitting the $1,250 deductible, then the lower deductible is actually a better deal.

Numbers clearly overly simplistic for argumentation purposes.