Factors to Consider Before Increasing an Insurance Deductible

03/4/2010

Consumers may reduce their insurance premiums by raising their deductibles, increasing the amount spent out-of-pocket before their insurance kicks in.

This only works if they have enough money to cover small losses - and sufficient savings to recover from an emergency. A recent report by the Christian Science Monitor suggested that consumers weigh the amount of money they would save by increasing their premiums compared with the occasional costs they would be forced to incur.

Having emergency savings allow consumers to comfortably cover out-of-pocket costs not paid for by their insurers. This fund should be large enough to account for several months' worth of expenses - and is crucial for those considering raising their deductible, according to the report.

"We don't have homeowner's insurance because it's fun - we have it because it will help us start over with a new home should our house burn to the ground," the report said. "Without it, most of us would financially sink."

A deductible can be determined as a specific dollar amount, as a percentage of the claim or the amount of time that must elapse before the insurance kicks in, according to the Insurance Information Institute.

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