Preferred Financial Group

"We listen, we educate, then we perform like no one else in the industry."

Frequently Asked Questions

"How To Determine The Correct Deductible?"

 

Careful consideration should be given before selecting a deductible amount. Here, it is important to note that what might be adequate for one family may not be for another.

 

Things to consider:

    • Choosing a deductible will impact your annual premium i.e., a higher deductible will reduce the dollar amount of your premium as a lower deductible will be more costly.
    • If you have very limited cash reserves and choose a higher deductible ie. $1,000, you may find it difficult or even impossible to come up with your deductible portion of a claim.
    • If you have substantial cash reserves such that having to come up with the deductible amount would not pose any problems, consideration of a higher deductible may make sense.
    • Irrespective of your situation, you should ask for a premium quote with two or more deductible options. This will better equip you to analyze which option is best for you.

 

Illustrated:

Cathy and Tom are newlyweds. Tom had a very promising career ahead of him as an accountant, but at the moment, they were struggling to meet their monthly financial obligations. Their mortgage payment, property taxes and property insurance took up a substantial chunk of his take home pay and there was little flexibility in modifying that outflow. While both their mortgage payment and property taxes were fixed, they learned there was a little room for improvement in their home and auto insurance payment. After agreeing on adequate coverage for their homeowner’s and auto policies, their insurance agent presented them with two options for each policy: one with a low deductible and the other with a higher deductible. The accountant in Tom surfaced. He liked the lower premium associated with the higher deductible, but understood that, in the unlikely event of a claim, they would not be able to comfortably come up with the deductible. Thus, they chose the higher premium/lower deductible option, vowing to  keep it only as long as it took them to save a large enough financial nest egg to be able to easily handle a higher  deductible. They thought that could be accomplished in less than year.