Which Deductible Should I Buy?
Low deductibles are great when the claim occurs but rarely are they the best long term decision.
O.K. Let’s start this discussion with a trip to Las Vegas. Odds are, if you are reading this, you don’t live in Vegas so a trip is within the sphere of imagination for you. See this decision is all about odds.
If you were trying to decide whether to go to Vegas or another gambling mecca such as Atlantic City and your plan is to gamble, then the odds offerred by each cities’ cansinos would be important to you.
If both cities’ establishments raked off an average of 5%, you would be indifferent to the decision. You might then look at the travel costs, entertainment choices, and weather to finalize your plans.
However just imagine that one of the destinations raked off 40% of every dollar that was spent! Sound unfair but you have just ran into the business of insurance. Around 40 cents of every dollar that you give an insurance company for auto, home, or business insurance is consumed by various parts of the insurance industry from advertising to sales, claims settlements, and yes even profits.
Before we go further, let me go into one other aspect of the insurance/gambling industry. When you go to Vegas, I’ve heard that there are tables that require a minimum bet in order to even sit down for that particular game. Yep, not everyone has the buying power to get in a particular game.
It’s the same in the insurance business. You have to have a certain amount of buying power to avoid having to purchase lower deductibles. Some buy here-pay here car sales lots are requiring $250 deductibles on a car that you finance through them. Other lenders require $500 or even a $1,000 deductible to get a loan through them.
Remember, each insurance company is going to try and make the same return on each dollar that you give them. They, (just like the casinos) know the odds and have you figured out when you pick up the phone or walk in the door.
So how can you make a long term good decision on deductibles. Get yourself on a solid financial footing so that a larger deductible won’t “break the bank”. Save some money for the unfortunate events that occur in your life. Become your own insurance company for the smaller mishaps. Remember, you are earning 40% on each one of those dollars and it’s tax free money.
With all this said, a person’s personality still comes into play. I remember meeting with one of my clients and going over all the options. He was a medical doctor and could stand very high deductibles. I made the presentation, he bought the higher deductibles, and shortly thereafter I was visited by his spouse. She didn’t feel comfortable with the higher deductibles and wanted a lower one on her car. No problem, I said… that’s your call!
You see, one of the purposes of insurance is to reduce stress. If you are worrying about the financial consequences of a windstorm, fire, or hailstorm hitting your home or car (in addition to the physical risks), then a lower deductible may be right up your alley. It’s a balancing act. Buy at the level that feels comfortable. Just remember as part of the feeling that you’re not at a 90% payout casino, it’s a 60% payout deal.
If you are looking to buy insurance in Lubbock, TX, anywhere on the South Plains, or for that matter, anywhere in Texas, give Hettler Insurance Agency a call at 806-798-7800 or visit www.hettlerinsurance.com for more information. Now you know. Happy 4th of July America!