How to Choose a Deductible

There are lots of choices when it comes to insurance. One of the biggest is how to choose a deductible.

A deductible is the amount you choose to pay before insurance kicks in. It can be as little as $100 and as high $10,000 (with many options in between).

When it comes to your car, deductibles typically only apply to collision and comprehensive coverage (both of which are optional). For your house, it typically only applies to property damage. Liability coverage (which covers you in the event you’re legally responsible for harming someone or their property) typically does not have a deductible. That’s because insurance companies want you to report your liability claim ASAP, even if it’s small.

Generally, there is an inverse relationship between the deductible you choose and how much your premium costs. That means if you choose a lower deductible, you can expect to pay more in premium.An Erie Insurance Agent weighs in

One person who knows about deductibles is Kent Unruh, co-owner of Unruh Insurance Agency in Denver, Pa. In his 28 years as an insurance agent, Kent has advised hundreds of people about how to choose a deductible.

“It’s important for an Agent to let people know their options instead of telling them what to choose,” he says. “When it comes to home insurance, most people end up choosing $1,000; for auto, it’s usually less since your car is usually in harm’s way more than your home.”

Many Agents suggest choosing a deductible somewhere in the middle based on what you can afford—and to use insurance to cover true financial loss instead of small claims. More often than not, submitting more claims leads to premium hikes.

In the end, much of it comes down to your tolerance for risk and your financial situation. If being on the line for a larger amount makes you nervous or you’re not sure if you could cover your deductible, consider a lower deductible.

And no matter which amount you choose, it’s important to heed what Kent calls his “biggest advice.”

“Whether it’s $100 or $10,000, I tell everyone to have an emergency fund with enough money in it to cover the deductible,” he says.

A few final tips on how to choose a deductible

Here are three more things to keep in mind:

• Be aware of percentage deductibles. Typically used in homeowners insurance, percentage deductibles are a certain percentage of your homeowner’s limit. This can lead to sticker shock since percentage deductibles tend to cost more and be more unpredictable than named deductibles.
• Consider different deductibles for different perils. Some insurance companies give you the option of choosing a different deductible for different perils like hurricanes, theft and fire.
• Check with lenders to see if you need a minimum deductible. If you have a car loan or a mortgage, it’s possible your lender may stipulate that your deductible not exceed a certain amount.

Talk to an Erie Insurance Agent in your community when it comes to how to choose a deductible. He or she can show you the difference in premium that different deductibles make and offer trusted advice.