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You’ll likely recall our enlightening issue last week about the importance of having an emergency fund. Although interest rates are low these days (to put it lightly), cash can do double-duty and actually save you money. Maintaining an adequate cash reserve affords you the opportunity to increase your home and auto insurance deductibles – after all, you won’t have a problem coming up with the cash in the event of a claim. By increasing your deductible, your share of the risk is increased and the insurance company’s share is decreased. Lower risk to the insurance company means lower premiums for you!
Worried that this will cost you more if you file a claim? We thought you might be, so allow us to put your mind at ease. The average cost of a homeowners policy in the US is just under $1,000 per year and the average person will file a claim once every nine years. So, in order to save money by increasing your deductible from $500 to $2,500, your premium would need to go down by more than $222 per year. We put this to the test and requested quotes for two policies from a local agent. The first quote included a $250 deductible and the second was set at $2,500. The average premium savings on a higher deductible policy was 24%. That’s $240 on a $1,000 policy.
Want to find out how much you can save? Give your insurance agent a call to confirm your current home and auto deductibles. Like most people, you may have yours set at $250-$500. Ask your agent how much you can save on premiums if you increase the deductible on your car insurance to $1,500 and $2,500 on your home. The saved premium can be used to further bulk-up your emergency fund or split between needs like retirement (hint, hint), and wants like those classic Manolos you’ve been eyeing.