Pros and Cons of Low Deductible versus Low Monthly Rates

In insurance, a deductible is the amount that an insurance holder will have to pay out of own pocket before the insurance company will contribute payments to a claim. For a 10% deductible insurance plan which has a $1,500 minimum value and also has a value of $5,000 as maximum, an insurance claim of $20,000 would incur 10% of the loss as out-of -pocket deductible, which is $2,000. The resulting payment from the insurance company would then total $18,000. A Low Deductible Plan attracts a larger monthly premium while a low monthly rate one (typically called a High Deductible Plan) incurs a lower monthly premium. 

Pros and Cons of Low Deductible Insurance Plans

This plan really comes in handy because it helps to avoid payments of a heavy amount of money to cover expenses that their insurance claim cannot cover. People that have high regular income would find this plan really useful.

This plan can also be a bit of a pain because the amount to be paid monthly is higher. This monthly premium is non refundableso if the insured happens not to need to make an insurance claim, the large amount of money paid cannot be refunded.

Pros and Cons of High Deductible Insurance Plans

This is a plan that is attractive because of its smaller monthly premium, which people find easier to pay. The plan also helps the insured save money in the event that they do not have any need to make insurance claims. Members of society that are middle to low-income earners often opt for this plan because it seems to help them save money. Generally, people that do not have the proper financial backing to help them cover a high cost of monthly insurance premiums usually tend to go for this plan.

The cons of this High Deductible Plan are that it could lead to individuals paying a lot at once to cover expenses that their insurance claims cannot sufficiently take care of. This large amount of money they have to pay to settle the expense might put a big dent in their current financial situation and in some cases force people to take a loan they do not want to in order to make ends meet. 

Factors that Determine Optimal Deductibles and Rates 

• The most preferable way to take advantage of a deductible is usually to make saving money a priority so as to cover losses that can come up. It is advisable to re-visit the insurance policy yearly to make adjustments tothe deductible according to the amount of money you have saved up.

• If it is possible to afford $5,000 deductible out-of-pocket expense you should make sure that the difference will result in savings on your insurance premium. 

• In the case where you have a deductible of $1,000 and you have losses of values between $1,000 and $2,000, you should make careful consideration if it is wise to submit an insurance claim or not. It is possible to lose a no-claim bonus and then be listed as higher risk, which in turns can lead to higher premiums. If you pay both the deductible of $1,000 and also the remainder it may sometime be worth it as long as you can afford it.

• Increasing deductibles to $2,000 can help you save 20% of your insurance premium.



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