When You Should Increase Your Deductible
Raising your deductible — the specified amount of money you must pay an insurance company before they pay a claim — is one way to save on monthly premiums. However, this decision is best for only a handful of situations. Discover what circumstances might legitimize a higher deductible, as well as some strategies for adjusting your deductible for different coverages.
A general rule of thumb
Regardless of what type of insurance you’re considering raising your deductible for, there are some general guidelines to consider before making this decision. The Balance contributor Mila Araujo explains that increasing the deductible for home, auto or health insurance can benefit you if you have a sufficient emergency fund to pay out-of-pocket for damages. If you do decide to raise the deductible, she advises raising it to the amount you’re financially comfortable in paying out of pocket.
Raising your homeowners insurance deductible is one way to reduce monthly premiums explains Nancy Albanese, vice president of personal insurance for Powers Craft Parker & Beard, in an article for U.S. News & World Report. If your home is at low risk for accidents such as hurricanes, electrical fires and flooding — due to installed safety features like smoke detectors, fire extinguishers and hurricane shutters— it might be wise to consider raising the deductible on your insurance.
According to the DMV, your driving record is one factor that might justify an increased deductible for your auto policy. For example, if you’ve never been in an accident and make a habit of driving safely, you might opt for a higher deductible. You might also consider having different deductible amounts for certain types of auto coverage. For example, The Balance contributor Emily Delbridge suggests increasing a $100 deductible on comprehensive and $500 on collision to $500 and $1,000, respectively.
Per Nerd Wallet contributor Lacie Glover, raising your deductible for health insurance coverage is a good idea if you meet the following criteria:
- You are healthy and rarely need medical care
- You’re financially able to make significant monthly contributions to an HSA
- You are healthy and interested in using an HSA as an alternative savings account and you can afford to pay a deductible either within 30 days of receiving the medical bill or can pay for the total cost of a medical claim upfront.
A higher deductible is also better-suited for a single person than a family, since annual deductibles can be twice as high for families, according to Consumer Reports contributor Donna Rosato.
While raising your deductible can be a wise move for some individuals, it’s best to evaluate your unique circumstances and coverage needs before making your decision. If you do happen to fall into one of the few situations where it might benefit you to raise your deductible, consider doing so to reap the benefits of lower premiums.