How do you choose the right deductible? One of the first pieces of advice someone receives when trying to lower their auto insurance premium is to “raise the deductible on your policy.” But what does the deductible mean, and how does it work?
To better understand, we must establish that the insurance business involves buying future risk. The more risk an insurer takes, the more the policyholder must pay.
On the other hand, the deductible is the amount of money a policyholder must pay each time they make a claim. In other words, if your auto insurance deductible is $300 and you have an accident that costs $1,000 to repair, you would pay $300, and your insurer would cover the remaining $700.
Now, imagine you have the same accident, but your deductible is $1,000. In that case, you’d have to cover the entire cost of the vehicle repair.
What this example teaches us is that the deductible is a risk factor. Depending on its amount, the insurer will take on more or less risk in a contract. Following the previous example, all accidents costing $1,000 or less will be the policyholder’s responsibility. From the insurer’s perspective, a higher deductible means less risk and, therefore, a lower insurance premium.
Conversely, the lower the deductible, the higher the risk for the insurer, and consequently, the insurance premium will be higher.
Now, you may wonder what the right deductible is. The answer is that it depends on your financial situation and your personality. If you can afford a high insurance premium, you can minimize the deductible.
On the other hand, if you want to reduce your premium to the lowest possible, you can maximize the deductible, but make sure you have set aside the corresponding amount because each time you make a claim, you must cover the deductible.
If you’re interested in lowering your auto insurance premium, give Univista Insurance a call. How do you choose the right deductible?
Give us a call today for a comprehensive qualification! (305) 985-4126. You can also get a free quote here.
