Insurance! It’s one of the only items you will ever purchase that you hope you do not use!
If you keep this in mind it is easier to understand the role insurance plays in our financial lives. Insurance does not fix anything it only provides money for items you cannot afford to fix. You then have a decision to make regarding who fixes the problem.
The only thing an insurance company does is hand you money!
How do you protect yourself and pay a reasonable amount for insurance?
Today we talk about the most obvious the deductible.
The deductible is nothing more than the agreement that insurance does not pay until a predetermined amount of loss occurs. The concept is simple if the loss is small it is not worth paying to insure. Since you agree to pay smaller losses yourself the cost of the insurance is reduced accordingly. Here is where simple math comes into the equation along with an honest look at the potential for a loss.
I am going to use auto insurance to show how deductibles work.
The more risk you retain for yourself the lower the cost of insurance to a point.
There is a point at which you do not gain by taking on any more of the risk.
Example- This is only to show the cost savings and the time it takes to repay the extra risk.
Using an annual auto policy to show the math
No deductible- Insurance cost is: $500
$500 collision deductible $250 The payback is 2 years without a claim
$1000 collision deductible $200 The payback is 5 years.
In these scenarios, the most risk-averse would choose to have the insurance pay everything in case of a claim. When you move down the options the more the insured has agreed to cover some of the risks.
The last thing to consider:
Does the money I save in auto insurance premiums justify taking on higher risk and a higher auto insurance deductible?
Often, the answer is “no,” Do the math and look at your options. It is a fair question to ask for quotes that show savings for self-insuring some of the risks. The difference in savings is sometimes not worth the increase in deductible.
The team at Whitco insurance of Palm Harbor can walk you through the options as well as find you a policy that fits your budget and coverage requirements. We are an independent brokerage which means we work for you and do not just represent one company. Give us a call and allow us to shop for you!