Insurance: 3 reasons why you may want to assume more risk
When it comes to insurance, my philosophy is to self-insure for the small stuff. Today I present three reasons why I believe this approach could help many people save money over the long run.
Several years ago I closely examined all of my insurance policies to make sure I (i) had appropriate levels of coverage, and (ii) was getting the best value. I found for many policies, by increasing the deductible, I will likely save money over the long run. Assuming you have adequate reserves to cover the increased risk, you may want to explore the savings / risk tradeoff for raising your deductibles too. Heres why...
1. The break even point may be shorter than you think
Based on my experience, it wasnt unusual to find relatively short break even points. For example, if raising your collision deductible another $500 were to save $167 / year, you could in theory "afford" to have an accident every three years and still break even.
2. Even a small claim may increase your rates
While auto comprehensive may be an exception, there is always a chance that filing a claim or two may lead to a rate increase. If filing a small claim or two were to cause rates to go up, your total long term costs might actually be more than if you were to self insure for an occasional small loss. (If you know otherwise, please feel free to set me straight on this point.)
3. Too many claims and your coverage may be dropped
In the late 80s and early 90s I filed three small claims on my homeowners policy and Allstate dropped me like a hot potato.
Having high deductibles forces me to self-insure the little things and save the coverage for potential major losses.
How faithful are you to your insurance company?
For over a decade I have used State Farm for my insurance needs.* I have also avoided nickel and dimeing them with claims. For this they have rewarded me with a number of discounts. In fact, I have received quotes from both Geico and Progressive. Neither could match the low premiums I have earned by being a good long term customer.
* Everything except long-term care insurance
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