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How to Pick Insurance Deductibles


A deductible is the amount you have to pay out of pocket. If a health insurance plan has a $1,000 deductible, you'd need to pay the first $1,000 before the plan covers any expenses. You're responsible for any copayments or coinsurance fees.

Many health plans offer choices among deductibles. The main advantage of a low-deductible health insurance plan is that it's more predictable: You pay monthly premiums and don't worry about large out-of-pocket expenses. Low-deductible plans are a better choice for people with known health issues.

However, lower deductibles usually mean higher monthly premiums. You pay the premium no matter what, even if you never need health care services. You will probably get a nice break with a high-deductible plan: The lower premiums mean you save money every month if you don't require medical care. It's a good option for younger employees and older ones who are healthy, have savings and are willing to take a chance on higher out-of-pocket expenses should they need care.

You have to look at the downsides of a high-deductible plan, however. Is it going to be a burden to pay more than $1,300 all at once, for example? And that doesn't even cover copayments. You may be tempted to skip medical treatment because it takes such a long time before the insurance kicks in.

Many people hedge their bets by signing up for a high-deductible plan, and then plan to cover the deductibles by setting up a flexible spending account or a health savings account using pretax dollars.

Deductibles and Your Auto Insurance

Money experts tell you that having a high car insurance deductible is smart because your monthly payments will be lower. When you're weighing the benefits of low- or high-deductible car insurance, you have to consider a few factors — your finances, your driving record and your premium costs.

The deductible acts as insurance for your insurer, making you think twice about claiming for lots of little things: You might be more careful about parallel parking if you know you'll have to pony up $500 for repairs to your bumper. A deductible represents a sharing of the risk between the insurance company and the policyholder.

Again, there are plusses and minuses in your choices. With a low deductible, there's peace of mind if you're on a tight budget. Would your finances be seriously rocked by an unexpected $500 or $1,000 accident to your car? But if you can cover that, the great advantage of a plan with a high auto insurance deductible is the lower premium.

Homeowners Insurance Deductibles

Homeowners insurance deductibles may work a little differently. Sometimes it's a fixed amount, but it can also be a percentage of your home's insured value. Let's say your house is insured for $100,000 and there's a 2 percent deductible, meaning you'd have to pay $2,000 out of any claim. In the event of the $10,000 insurance loss, you would be paid $8,000. See how your policy works — and whether a serious event could cause major financial pain.

A home equity line of credit can help you cover some expenses quickly if you don't have an emergency fund.

There's a good chance that your insurance company has online quote tools that let you play with your deductibles to see how they affect premiums. Consider how much you'd really be saving by opting for a $0 versus $1,000 deductible. You want to make the right decision for your budget and needs.


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Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.
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