Should you have a high deductible or a lower deductible?
Do one thing: Get a copy of your insurance policies for your home, auto, and healthcare coverage and see what your deductibles are. Then, check in with your agents to find out how lowering those could potentially change your monthly payments.
It can be challenging to get up the gumption to spend time researching insurance options – for your home, automobile, and health – but that’s exactly what needs to happen to ensure you get the exact coverage you and your family need – and aren’t spending too much if (or when) calamity strikes.
If you breeze through your auto-renewal insurance reminders, you’re not alone. A recent survey during open enrollment showed that 72% of adults spent less than an hour deciding on their health plan, according to the Employee Benefit Research Institute (EBRI). That’s less than 60 minutes to figure out where a big chunk of every paycheck will go on things like premiums and out-of-pocket expenses including deductibles.
What is a Deductible?
When it comes to insurance, a deductible is the amount you pay for health care costs (or home or auto repairs) before your policy kicks in on covered expenses.
What to Know About Deductibles
And while we’re talking deductibles, we know it can be hard to check in on these with so many other things competing for our attention. Here’s the thing: You don’t want to keep super-high deductibles without having a big emergency cushion to fall back on. You also don’t want a deductible so cost-prohibitive that you don’t see a doctor because the price is too steep.
Case in point: A survey from the Commonwealth Fund found that more than one-third of Americans with commercial health insurance (with a deductible of $1,000 or more) reported skipping needed health care because of the high cost. Within that same group, more than 40% admitted they had difficulty covering medical bills or trying to pay off medical debt.
That’s why it’s wise to make sure your insurance deductibles are where they need to be every year, especially if you’ve had a life change or two.
How Full is Your Emergency Fund?
“Deductibles on all lines of insurance are too high if you don’t have the cash on hand to cover the deductible amount in the case of a catastrophic event,” says financial advisor Andrew Van Alstyne, MBA.
“Health insurance is a tricky one as there are a lot of personal considerations that go into selecting a high/low deductible plan such as medical conditions, average annual healthcare expenses, and the like.”
For those who don’t have a fully-funded emergency fund, Van Alstyne advises consumers to keep the deductibles as low as possible (without constraining savings goals too harshly).
“So if a catastrophic event occurs, it won’t derail their financial plan,” Van Alstyne said, adding “As we build savings, we will assess changes in coverage to both broaden the scope as well as increase coverage all while simultaneously increasing the deductible as we will by now have the ability to cover more out of pocket.”
Is a High-Deductible Insurance Plan Right For You?
High-deductible health insurance plans generally tend to cost less than others and may potentially be best for people who don’t usually have a lot of medical expenses or chronic conditions such as asthma or diabetes. They also can be a good fit for those who can’t afford a higher-priced plan.
Bottom Line: Run the Numbers
If you are considering changing your deductibles, financial planner Ryan Johnson says, “It’s important to always double-check to see if the move (up or down) will translate into greater savings.”
“I recently looked at an auto policy where the difference between a $250 deductible and a $1,000 deductible was only $17 for a six-month term,” Johnson said. “It would be easy to conclude keeping the lower deductible makes sense in that situation. If you can save significantly by raising the deductible and you have sufficient emergency funds to cover it, then consider raising it.”