Home and Auto Insurance Deductible

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Woody999
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Joined: Sun Sep 16, 2012 8:37 pm

Home and Auto Insurance Deductible

Post by Woody999 »

My wife and I usually keep ~$10k in our checking acct and we have a zero balance line of credit of $15k. We have another $20k in an emergency low interest savings acct. We also have ~$40k in backdoored Roth IRAs.

Those items make up our tiered emergency fund.

Now my question is about home and auto deductibles. How high should we set our deductibles? We currently have it set at $2,500. Seems like the last time I called and raised the deductible to $2,500, the higher you raise it the less money it saves you to raise it. At some point I wonder if it's worth the savings.

What are your thoughts? Thanks! :sharebeer
sport
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Re: Home and Auto Insurance Deductable

Post by sport »

I have found the homeowners claims are very infrequent. So, having a higher deductible on the HO policy makes sense. However, auto claims are much more common. Take a look at the rates for the various deductible amounts. It may cost little more to have the lower deductibles. Although it is somewhat non-Boglehead, I have very low deductibles on the cars simply because it is inexpensive for me to do so.
Independent
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Re: Home and Auto Insurance Deductable

Post by Independent »

I'd assume that at any deductible level, the insurance company collects more in premiums than it pays out in claims. After all, they have to cover their expenses and they want to earn a profit.
So, if you increase your deductible, the dollars you save in premiums are greater than the dollars of expected claim reimbursements that you are giving up. (Unless you know that you're a high risk driver and the ins company hasn't caught on to that fact yet.)
Of course, you don't know what the actual claims will be.
You buy insurance because you're willing to pay something to have a more predictable cost rather than a more variable cost.
IMO, deciding where to draw the line means looking at your emergency fund, thinking about a few scenarios, then going with your gut feel.
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grabiner
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Re: Home and Auto Insurance Deductable

Post by grabiner »

For auto insurance in particular, you may gain more than the insurance company's cash difference by raising your deductible.

If you have a $1000 deductible and your car suffers $2000 in damage in an accident, you won't gain much by filing a claim; the insurer will pay you $1000 but your rates will go up. If you had a $2000 deductible instead, you wouldn't file a claim, and your insurance would be less likely to go up (unless you also got a ticket as a result of the accident, or your insurance paid for damage to another car).
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Saving$
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Re: Home and Auto Insurance Deductable

Post by Saving$ »

On homeowner's, consider raising the deductible to the amount up to which you would not claim. If you had a $1000 deductible, and a $2000 loss, would you make a claim just to get $1000 and have that ping against your CLUE report?

On car insurance, the savings are less and the chances of a loss are higher. I've had my vehicle damaged by uninsured drivers a few times. I considered entirely dropping collision on my older vehicle but was only going to save $21/year because the cost of other coverages on the car would increase, and I would no longer be insured against loss of the vehicle from uninsured driver. I will drop it when the car is only worth about $2k-$3k, because at that point they would probably just total the vehicle and not fix it, so at that point, it is no longer worth it to me to have coverage. The difference between a $500 deductible and $1k was only $6 year. I went with $500.
bgrpph
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Re: Home and Auto Insurance Deductible

Post by bgrpph »

oops double post
Last edited by bgrpph on Sun May 31, 2015 7:07 pm, edited 1 time in total.
bgrpph
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Re: Home and Auto Insurance Deductible

Post by bgrpph »

i always do the calculations to see the premium change with higher liability coverage & higher deductible coverage- For Auto found that increasing liability coverage for bodily, property usually only increases the premium by few dollars- in my mind well worth coverage increase for few dollars-

For deductible amount i try to find sweet spot- sometimes increasing ded from $1k to $2k saves only $10-20 premium, where increasing from $250 to $500 or $500 to $1000- can reduce premium by $40-90 or so. Similar with decreasing ded- not worth the xtra premium cost. In my state with current insurer the sweet spot is $250 ded for theft & $1000 for collision.
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dm200
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Re: Home and Auto Insurance Deductible

Post by dm200 »

About 30 years ago, we increased our auto deductibles to $1,000. My "logic" was that, over time, we would be ahead because:
1. Premiums on collision/comprehensive would be lower
2. Not filing (nor paying for) a claim under $1,000 would eliminate the claim being used to increase premiums

#1 and #2 would offset paying losses between the previous deductible ($500, I think) and $1,000.

The first few years, my "logic" was severely tested when there were several repairs needed to our minivan that were a in the $1,000 plus range (wife backed out of the driveway into an oncoming car, wife ran into barrier at gas station doing a lot of damage to minivan, back window [with wires for defrosted/defogffer] of small sedan was destroyed when a severe thunderstorm hit, etc.]. We "stayed the course" and in the next decades only had one or two damage situations in that over $1,000 range. I did not do the math for the last 30 years, but I am convinced we saved money over the long haul.
Ninegrams
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Re: Home and Auto Insurance Deductible

Post by Ninegrams »

I raised my deductibles not to save money on current premiums but to remove the temptation to file claims for amounts I can readily afford out of pocket. The risk of raised premiums after claims, that's where the real money is IMO.
bloom2708
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Re: Home and Auto Insurance Deductible

Post by bloom2708 »

House: $5,000 deductible
2014 car: $2,500 deductible
2007 car: liability only
2004 car: liability only
$2 million umbrella policy

The only one I'm not sure about is the house. I try to forsee the smaller things that could arise. Hail damaged roof. Hail damaged siding. Wind damage to roof/siding. Flood (have insurance) or Fire seem much more major.
Hogan773
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Re: Home and Auto Insurance Deductible

Post by Hogan773 »

Resurrecting this thread to get others' views of the "sweet spot" for deductibles

I currently have $1000 deduct on both collision and Home insurance. I recently went from 250 deduct on Comprehensive to $0. Logic there was it was around $12 per year across both cars to do this. I figured that this opens me up to getting $0 windshield coverage so if I had a cracked windshield more than every 15-20 years it pays for itself, AND if I have a chip that costs $60-70 to fill, I could use for that too.

More interested now in thinking about proper HOME deductible. I could technically pay out of pocket to have my whole home rebuilt (wouldn't be happy but could do it) so I am beyond the "only get insurance for something that would financially devastate you." I guess I was thinking I really just need to get a schedule of the various deductible options and look at the savings for each tier, and then look at the implied claim frequency or "payback" right? Making up a ficticious example....if going from $1000 to $2000 saves 100 dollars per year, then ignoring time value of money, I am better off with $2000 as long as I don't have any major claim every 10 years. But if going from $2000 to $3000 only then saves $40, now the implied "payback" for that tier is 25 years. I assume there are sweet spots. Also what do people generally think of an appropriate assumption about when you might have a meaningful claim? I could see the logic of going with a really high deductible ($10K? $15? don't even know if they offer these or higher) but then you are really just saying that your homeowners is only for a) your house burns down or sustains MAJOR damage or 2) you are getting the liability coverage and beyond that you are self insuring even if you have a hailstorm that damages the roof and you need to spend $12K on a new one, etc. But if a higher tier only saves you $20 a year and you are taking on $10,000 in additional exposure layer that would seem to be a "bad bet" no? Because that would imply a breakeven claim frequency of 500 years......

How do Bogleheads analyze this sweet spot?
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