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 remember 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 select a higher deductible such as $2,500 you may find it difficult or 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 be sensible.
    • Irrespective of your situation, you should ask for a premium quote with two or more deductible options. This will better equip you to analyze what is best for you.

 

Illustrated:

Cathy and Tom are newlyweds, very fortunate newlyweds. Cathy’s parents adored Tom and were looking forward to their future grandchildren. So much so that they provided the kids with a substantial down payment on a new home (relatively close to their home). But it was made clear that the kids were on their own with respect to maintaining their household. Although Tom had a promising career ahead of him as an accountant, things were a bit tight at the moment. 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. Their mortgage payment was fixed as was their property taxes but they learned there was a little flexibility in their property insurance payment. After agreeing on adequate coverage, their insurance agent presented them with two policy options: one with a $500 deductible and the other with a $2,500 deductible. The accountant in Tom surfaced. He liked the lower premium associate with the higher deductible of $2,500 but understood in the unlikely event of a claim, they could not comfortably come up with the $2,500 deductible. Thus, the decision was made to elect the higher premium lower deductible keeping that only as long as it took them to save a large enough financial nest egg to be able to easily handle a $2,500 deductible.  They thought that could be accomplished in less than year.