Financial Planning for Generation X & Y Women
 
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Expert Q&A Archive

10/31/2006
Choosing insurance plans: deductibles vs. payments
I have a question about insurance products. I'm always at a loss as to whether to choose higher deductibles with lower payments or lower deductibles, but with higher payments. Do you have any advice on that in terms of vehicle insurance, property insurance, health insurance?
Gail V. Marquet:
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You have to weigh this decision individually for each. If you are young, in good health with few medical bills, the higher deductible and lower payment might be a good option. However, if you have high medical bills, the lower deductible might outweigh the cost of the premium. The same logic can be applied to vehicle and property insurance. If you live in a high crime area where the liklihood of accidents or property damage is high and the possibility of filing a claim is likely, you might want to consider the lower deductible.
Gary Silverman, CFP:
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The question I ask back is: how much can you afford. Assume that you get in a wreck (totaling your car), stay in the hospital for two weeks, and then come back to your home and find water pouring out of it from a pipe freeze. You're unlucky, so this happens two years in a row. Across all of those insurance policies, how much deductible can you afford to pay? This should be in some sort of safe emergency fund you have saved up.

Whatever number you come up with, that's how low your deductibles need to get down to. If that makes your policies a bit too expensive, then strive to slowly build up that emergency fund so that you can increase the deductibles over the years and lower your policy costs.
Jeff Kyle:
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I typically advise my clients to choose the highest deductible they can afford to pay with what they have in the bank. So, dont choose a $5000 deductible if you only have $430. You will have just put yourself in a jam if you find yourself having to actually pay the deductible! Also, compare the deductible cost & figure which is going to be the best value for your dollar. A higher deductible means lower premiums, but it also means better immediate cash flow! Just dont get caught needing to pay it & not having it. This is sound for all insurances!