One of the great things about working with an independent insurance agency like WalkerHughes Insurance, is there is a great deal of customization able to be offered to your insurance policies. Not only are we able to compare different carrier options for you conveniently within the same agency, but we are also able to present different quote options for your review as well. This helps customers feel comfortable that they have secured the best coverage for their needs at the best rate we can offer. Whether that comes in the form of reviewing different limit options to see the costs associated with moving between those levels or seeing what impact different deductible options would have on your premium, with customization comes a lot of choices! Since too many choices can sometimes be overwhelming if you are not confident in your options, we wanted to review some factors to consider when selecting the best deductible option for your family.
What is a Deductible?
First, it is important to break down what a deductible even is. A deductible is a pre-set amount that the policyholder will be responsible for before the insurance policy will kick in to cover the remaining damages in the event of a covered loss. In short, damages must exceed the deductible for the insurance company to pay anything. Say you carry a $1,000 deductible on your auto insurance policy, and you happen to accidentally back into your own mailbox. (It happens to the best of us!) If the damage to your vehicle is cosmetic and the cost to repair is only $800, insurance would not make a payment as the damages did not exceed your deductible amount. You would be responsible for repairing the vehicle out of pocket. Next example, it was not a mailbox you backed into this time, it was a large concrete wall that you side swiped, causing damage to the entire passenger side of your vehicle. (Again, judgement free zone here, we know it happens – thankfully, there’s no injuries in this example!) The estimate comes back at $4,000 in damages – yikes!! If you carried the same $1,000 deductible we discussed before, you would pay that to the body shop and the insurance company would pick up the rest of the tab, paying out the remaining $3,000 for your repairs. Make sense? There are countless other deductible scenarios we could come up with, so if you would like to test your agent’s knowledge when it comes to deductibles, feel free to ask them for their favorite example!
One of the main things to consider when reviewing deductible options would be how much you would comfortably be able to cover should a claim arise. Whatever amount you select as your deductible, you will want to make sure you have access to those funds should an incident occur, and you need it. In the event of a claim as a result of a covered loss, in most instances the insurance company will pay the approved vendor the amount of the invoice for the cost of repairs less the deductible amount. It is then up to the insured to pay their deductible directly to the vendor. In some cases, the vendor will not begin the repairs until the deductible amount is paid up front. In others, often auto insurance, the deductible is collected when repairs are complete before the vehicle is returned to its rightful owner.
Insurance companies give you the flexibility to choose who you would like to work with on repairs. But you will want to be sure you are selecting reputable vendors approved by your insurance company. One thing to be on the lookout for is fraud involving the payment of your deductible. A situation where this might occur is following a large, regional, weather-related losses (think hail or tornado here in the Midwest). There can be a great deal of scamming that accompanies those types of storms when unethical out-of-state companies know there is a lot of work centralized to one area. One common scam involves paying your deductible up front and then the work never being completed. You will always want to clarify with the vendor the terms of the agreement and how payment is being coordinated and again, make sure you are selecting a reputable vendor. Broken record much?! If you ever have questions on vendor recommendations, that is also something your WalkerHughes team member can work with your insurance carrier to provide a recommendation on. It is common for insurance companies to have networks of approved vendors that make the process go smoother for the insured. Those vendors often include a warranty or guarantee on the work that is completed there, which is definitely something to consider when selecting a vendor.
What Amount to Select?
At this point you might be asking yourself; how much is too much or how low do you want to go?!
- Carrying a higher deductible can sometimes result in a lower premium as it can be perceived as a lower risk to the insurance company. A higher deductible symbolizes that the insured is willing to self-insure up to that amount, therefore the insurance company will not be brought into smaller claims – which are more likely to occur from a frequency standpoint. For many who would consider paying minor damages out of pocket to reduce claims activity on their policy, carrying a higher deductible would be a favorable option in that situation. By carrying a higher deductible, you may save some premium dollars. But the savings might not be substantial enough to outweigh the financial burden should a loss occur, and you must fork over the higher amount.
- Apologizes in advance as this paragraph is basically a complete reverse of the paragraph above. But carrying a lower deductible can sometimes result in a slightly higher premium as it can be perceived as a higher risk to the insurance company. A lower deductible can symbolize that the insured is not willing to self-insure as much, therefore the insurance company will likely be brought into smaller claims – which, again, are more likely to occur when analyzing the frequency and severity of claims. If you don’t want to have to cover minor damages out of pocket and intend to claim any damage that could occur during a policy term, carrying a lower deductible could be most favorable for you as that would be a lesser chunk-of-change to come up with in the event a loss would occur.
It is understandable if it may feel like a challenge to find the sweet spot that fits best for your family, but your insurance agent is available to assist with that! The WalkerHughes team is happy to review quotes with different deductible amounts to illustrate the costs associated with carrying a higher or a lower option on your policy.