the right deductible
are changing, both in our personal financial lives and in the insurance
business. As modern homeowner policies offer more and more coverage,
the companies that offer them are more conscious about claim use
than ever. It is hard to feel sorry for insurance companies but
they are facing many of the same financial difficulties you and
I face. For years they enjoyed high stock market returns and interest
rates on their investments. These high investment returns allowed
them to compete for customers. They lowered rates and expanded
policies to cover more perils. When the interest rates and stock
market finally declined, they realized they needed to charge much
more for their policies in order to pay the claims they were seeing
in record numbers.
all been affected by this market cycle, both by paying lower than
normal rates during the late 1990s and now by paying higher than
way to help fight these higher rates is through careful consideration
of the proper deductible. A mistake often made is thinking that
any claim larger than the deductible should be turned in. We suggest
thinking of how much you could afford if you had
to pay for a loss, without causing a financial hardship, say $1000
for example. Then cut that number in half and that amount is generally
a good deductible. When a loss occurs, decide whether this is
a claim you should pay yourself, even if it exceeds your deductible.
Remember that most claims are relatively small. Absorb these
small claims and use your insurance to pay for the large ones.
Don’t risk the insurance protection of your most valuable asset
by turning in a lot of small claims.