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Canajun Finances Home » Insurance Deductibles: Where is the Tipping Point?

Insurance Deductibles: Where is the Tipping Point?

From 2012, but the topic of optimal insurance deductibles is still topical.

What is the “tipping point” for insurance deductibles? (sorry, I love misusing that term, just like the real media). If you set your deductible high enough, you may as well not even have insurance. If you set your deductible too low, you end up paying an inordinate amount of money in Insurance Premiums.

An example from my Church:  some “scum bag” stole a laptop computer, which was being set up for a presentation. In the end, it was not worth making a claim because the deductible was too high. It was high because that cut the premiums by half.

If your insurance deductible was set too high, you could not make a claim. What is the sweet spot for a deductible, so your premiums are low enough?

My problem with this whole deductible quandary is that the insurance becomes effectively useless except in dire circumstances (i.e. your car is stolen, your house burns down, etc.) if your deductible is set high (to save on insurance rates).  I end up self-insuring for little things like bicycles being stolen from my garage (another “scum bag” moment), or things like that.

My guess is that where to set your insurance deductibles is a personal choice. If you feel the insurance will never be used, set a high deductible. If you are risk averse, set them lower and pay the higher premiums.

Does anybody have any personal experience with where the “sweet spot” for insurance deductibles should be?

Feel Free to Comment

  1. Insurance is for disasters, not small stuff.

    I guess it depends on what you classify as small stuff.

    The fact that your Chruch was robbed, is horrible. WTF is wrong with people??

    Sad world.


  2. I think Laura’s got it very right. An emergency fund is a form of self-insurance. “Acceptance” of risk is a very legit risk management tactic, so long as you’ve considered the possible outcomes. You should insure yourself against any significant catastrophic loss. Insurance is just a reverse lottery; it pools risk and the insurance company takes a profit off the top. If the risks are small – e.g. pet insurance, extended warranties – then it’s almost never a good idea to insure.

  3. Well, my take on insurance is that it’s for disasters, not minor expenses. It’s annoying but not financially devastating to have to pay $1000 out of savings for a stolen laptop that isn’t covered by a deductible. It’s not an option to pay several hundred thousand dollars when your house burns to the ground, though. That’s what insurance is really for, and I keep my deductibles very high to keep my premiums low. Considering I’ve never had to make a claim, I’ve easily saved the difference in premiums that I’d have to pay in a deductible if I do have to make a claim in the future.

  4. This is my biggest beef with insurance. You have to have it but you’re dinged if you use it. It’s feels like I’m being robbed!!

    Our church used to get robbed all the time. It is ironic eh? Because they are such public places it is easy for people to get in there or figure out how to get in there. Churches are supposed to cater to broken people, some of whom are accustomed to stealing etc., so they bring those people in to minister to them and then they see all of the expensive equipment and where it’s kept and the bulletin tells them when people will/ will not be there etc… 🙂 It’s a bit of a catch 22.

    A few high-end guitars were once stolen from our church. One of them was extremely unique. The musician who owned them was repaid by the church and replaced his instruments and life went on. A couple years later my husband was providing the music at a party (we were in our late teens) and someone struck up a conversation with him about these great guitars he had and would my husband be interested in them? He described the instruments that had been stolen to the exact detail. My husband held on to his own guitar a little tighter. 🙂

  5. I find higher is usually better. For a church, if there was risk pooling at higher church levels, a deductible of $10,000 would make sense. Having a lower deductible won’t stop the scumbag from stealing the laptop. Insurance companies feed on the illusion that their coverage actually prevents bad things from happening.

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