When it IS a good idea to pick the cheaper insurance plan—and when it definitely ISN’T
February 13, 2019
When on the market for Home or Auto Insurance, what do you look for? Please don’t tell us you just want the cheapest possible option. We don’t like to hear that. Here’s why:
Insurance is meant to transfer financial risk away from you when something bad occurs. So if you ever need to make a claim, you know that the insurance will cover: some, most, or all of the damage. That way, you can continue on with your life mostly unaffected, even if something happens. If you only look at the cheapest price without ensuring that you have proper coverage levels, you’ll likely find yourself in store for some unpleasant surprises if you need to make a claim.
Now, pretend that you selected a plan with great coverage…but your broker is still offering you two or three rates. The only noticeable difference between the plans is the deductible. Can you pick the cheapest plan then? It depends.
WAIT—What’s a deductible again?
A “deductible” refers to the amount that you must pay out-of-pocket before an insurance company will pay the remaining amount. Deductibles help insurance companies prevent small or frivolous claims. Plans that come with a higher deductible usually have lower premiums.
But if you pick an amount that you do not readily have set aside, then you will experience financial strain trying to scrounge up the deductible, before you can access the rest of your policy. You also have to factor in how likely it is that you will need to make a claim.
When It Comes to Auto Insurance…
The truth is that your likelihood of getting into an accident is always the same. So, if your car is relatively new, we suggest that you pick the lowest deductible—typically $500. This will minimize the amount you pay out-of-pocket if your car is totalled.
When It Comes to Home Insurance…
Homeowners typically need to make a claim once every nine years. In this case, it may be a good idea to pick a higher deductible because it will lower your premiums significantly.
But be warned: you never want to pick a deductible that is more than you can comfortably afford. This would completely defeat the purpose of buying insurance in the first place—to transfer financial risk and strain away from you!
Ultimately, you need a Home & Auto Insurance policy that takes your risk profile, your coverage needs and your budget into account. We can help with that. PROLINK’s dedicated advisors will take the time to fully understand your unique circumstances and help you make insurance decisions that are relevant and simple.
PROLINK’s blog posts are general in nature. They do not take into account your personal objectives or financial situation and are not a substitute for professional advice. The specific terms of your policy will always apply. We bear no responsibility for the accuracy, legality, or timeliness of any external content.