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When you’re purchasing your insurance policy, you’re asked about deductible options. For example, on an auto insurance policy, they may ask you if you want a $500 or $1,000 deductible. I’ll bet a lot of you have questioned whether or not you want to spend more money before the insurance company pays out.
The reason for a deductible, in part, is to prevent numerous small claims from being made. If a claim is not much more than the deductible, the insurance company will surely pay it out, at the price of a higher premium on future renewals up to five years.
So why would there be an option for a higher deductible? What are the pros and cons of a high deductible?
Con: The biggest con, obviously, is paying out of pocket for this expense. That could put a damper on your mood.
Pro: A higher deductible makes for a cheaper monthly payment. You’ll be paying less overall, and if you don’t have to file a claim, the cheaper premium can be beneficial for you.
Con: Depending on your financial situation, it can be tough to come up with a higher deductible amount at the time of the incident.
Pro: Regardless of the higher deductible, it’s still less than what you would have been paying out of pocket without insurance.
Pro: If you a small claim, your insurance rates are going to go up. If something happens that would result in a much larger claim, it’s possible the insurance company could discontinue your policy.