When it comes to insurance, having a lower deductible may seem like a great idea. After all, if you have to file a claim, having a lower deductible means you will have to pay less out of pocket. However, in reality, having a lower insurance deductible may actually end up costing you more in the long run.
The deductible is the amount of money you have to pay out of pocket before your insurance kicks in to cover the rest of a claim. For example, if you have a $500 deductible and you file a claim for $1,000, you will have to pay $500 and your insurance will cover the remaining $500.
But here’s the catch: in order to have a lower deductible, you typically have to pay a higher monthly premium. This means that over time, you will end up paying more in premiums in order to have the benefit of a lower deductible.
Furthermore, having a lower deductible can also lead to more frequent claims. Because the out-of-pocket cost is lower, you may be more likely to file a claim for smaller incidents, such as a minor fender bender or a small medical expense. Filing more claims can lead to an increase in your insurance premiums, which will cost you more money in the long run.
Another factor to consider is that having a lower deductible may encourage you to rely too heavily on insurance for minor expenses, rather than being financially prepared to handle them on your own. This can lead to a mindset of over-reliance on insurance and can prevent you from building up emergency savings to cover unexpected expenses.
In some cases, it may make sense to opt for a higher deductible and lower monthly premium. By doing so, you can save money on your monthly premiums and still have the peace of mind of knowing that your insurance will be there to cover larger, more catastrophic incidents.
Ultimately, the decision of whether to have a lower or higher insurance deductible depends on your personal financial situation and risk tolerance. It’s important to weigh the costs and benefits of each option and choose the one that makes the most sense for you. Consulting with a financial advisor or insurance agent can help you make an informed decision that will save you money in the long run.
