Preferred Financial Group

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Comparisons

"What’s The Relationship Between Deductible Amount And Annual Premium?"

 

If you are willing to accept responsibility for a larger amount of a potential claim, the insurance company will reward you by decreasing your cost of insurance with a lower annual premium. The example below illustrates annual premium differentials based on the insured’s willingness and ability to accept deductible limits of $500, $1,000 & $2,500. The annual premiums are shown for each scenario, as well as the cost differential for the increased deductibles as they relate to the most expensive coverage.

Conclusion:

By increasing your deductible from $500 to $2,500, you can reduce your annual premium by approximately 1/3rd. This savings is substantial, particularly when you think of insurance as a way to protect against catastrophic losses, as opposed to minor losses. It’s as though the insurance company is giving you $421 a year just to assume a bit more responsibility for an event that may never occur. Here are a few thoughts on how you might use the savings of $421:

          • It would be enough to purchase an umbrella policy.
          • It could be used to purchase a decreasing term insurance policy designed to pay off your mortgage in the event of an untimely death.
          • It could be applied to your regular monthly mortgage payment, thereby reducing the remaining term of your mortgage payoff.
          • It could be used for enhancing your investment portfolio, including retirement planning…FYI— Did you know that investing $421 per year ($35.08 per month), with an annualized return of 6%, will grow to $16,209.93 at the end of 20 years?