FAQ: How to Determine Your Insurance Deductibles

Figuring
out your insurance deductibles can seem like a catch-22 when you’re buying your
first insurance policy. Do you go for the lower monthly payments and risk
higher out-of-pocket costs? Or do you give yourself the peace of mind of a low
deductible at a slightly higher monthly expense?

Thankfully,
if you make your insurance decision with the right knowledge, information, and
guidance from a trusted agent, you won’t go wrong. A good insurance agent won’t
advise you to put yourself at any financial risk but will also listen to your
budgetary needs.

If
you’re not sure what to do about your insurance deductibles — or how they even
work — here’s a crash course from Rusty McDaniel, a Texas Farm Bureau Insurance
agency manager in Pecos County.

Q: What does my
deductible mean?

A:
Basically, the deductible is the portion of risk that you are taking on. Say
you get into a car wreck and sustain $2,000 in damages. If your deductible is $500,
you would pay that amount, and the insurance provider would pay the balance of
$1,500. But let’s say your deductible is $3,000. In this case, you would be
responsible for the entire bill, since the repair cost is less than your total
deductible amount.

Q: How high should my
deductible be?

A:
The simple answer is premium, or how much you pay for your insurance. A policy
with a lower deductible is going to cost more, because the insurer is assuming
more risk. If a client’s overall objective is a lower premium, they can take a
higher deductible and take on more of the risk.

Of course, it’s important to consider how much you would be able to pay out of pocket in the event of a claim. For some people, writing an unexpected check for several hundred dollars or more may not be a problem. But for many, that would be a significant financial hit requiring sacrifice somewhere else in the budget.

Q: How should I
determine my deductible?

A:
Each person’s needs are different, so at the end of the day, it simply comes
down to what you are comfortable with. Consider when you are most likely to
file a claim. For example, in Fort Stockton, where I’m based, broken
windshields are common due to West Texas roads and wildlife. Many of my clients
choose low-deductible auto policies so that they can replace them for minimal
cost. Also, do the math and decide if a high-deductible policy would really
save you significant money.

If
you increase the deductible amount, consider how long it will take to pay for
itself. Sometimes it’s worth it, but other times you would have to go 10 years
claim-free before it would benefit you.

As always, Texas Farm Bureau Insurance Agents are available to help you make an informed decision. Contact your local Agent today and determine what deductible best meets your insurance needs.

Coverage and discounts are subject to qualifications and policy
terms and may vary by situation.