For months now I’ve been meaning to dial up our insurance agent to see if there was anything he could do to lower the premiums on our home and auto insurance. Michelle’s post a couple weeks ago finally motivated me to pick up the phone.
Unfortunately, our agent didn’t have much for us. I guess I was kind of hoping he’d say something like, “Glad you called us. It turns out we weren’t giving you the full good driver discount. We’ll just go ahead and knock a hundred bucks off that premium for ya!” Instead, our agent explained our rates went up mostly because of an increase in statewide claims last year. In addition, there were a couple discounts on our homeowner’s policy that went away – new roof (it’s been a few years now) and new home (our house is not new any more). We could get a small discount on our auto policy if we sign up for that new device you plug into your car to monitor your driving habits. But, I’m not sure I’m comfy with the concept.
Aside from reducing our coverage amounts, which I really don’t want to do, the only other option on the table is increasing our deductibles. Awesome! In my post last week I talked about the benefits of going high on your insurance deductibles. Well, going high doesn’t always make financial sense. Here’s the thought process I use to figure out if it’s worth climbing a little further up the high deductible mountain.
1. Is it allowed?
If you’re making payments on your car, many car loans come with maximum deductible requirements. $1000 is pretty common. Thankfully, we own our cars free and clear, so we have some flexibility in this area.
If you have a mortgage, banks will often cap your deductible. Our mortgage company caps our deductible at 5% of our dwelling coverage amount. Currently we sit well below 1%. We clearly have some room to maneuver here.
2. Can you afford to pay the deductible?
You should have enough cash sitting in savings to cover your share of a loss. We have over 6 months of expenses stashed away, so we’re good there.
3. How many years would you need to go claim free to make up the difference?
You have to do a little math to figure out if the drop in premium is worth the deductible hike:
Deductible Increase / Premium Saving = Years to payoff
For example, raising our car insurance collision deductible $250 would save us $20 per year. Applying our formula, 250/20 = 12.5 years. Collision insurance covers damage due to accidents with other vehicles that we cause. We don’t generally get into any at-fault accidents (not that it couldn’t happen), so we might push this one up.
Likewise, bumping the deductible on our home owner’s policy up by $2,000 would save us $200 per year. This move pays for itself in 10 years. Will there be a claim in 10 years? Maybe. But, Mrs. Pennypacker and I are willing and able to cover the extra $2,000 out of our own pockets.
Have you looked at your deductibles lately? Does it make sense to push your deductibles a little higher?