The Pros & Cons of High Insurance Deductibles

The Pros & Cons of High Insurance Deductibles
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When you buy many types of insurances, your policy often includes a deductible. The deductible is an amount you pay on a bill before the insurer pays benefits. Health, dental, home and auto insurances often have deductibles. If you get into an accident, for instance, you would pay the deductible for any needed repairs before the insurer pays the balance, up to your maximum benefits. High deductibles can lead to lower premiums, but also higher out-of-pocket costs.

Lower Premiums

The single greatest benefit of establishing high deductibles is that you pay lower premiums than you would with a lower-deductible plan. The insurer has less risk with a high-deductible policy, because the benefit payout on a claim is reduced. You still avoid a major financial hit by having some coverage, even with a high deductible.

Avoid Wasting Money on Unneeded Benefits

Not only are the premiums lower when you get a high-deductible health plan, but you also avoid wasting money for benefits that you would likely not use. In fact, high-deductible plans are commonly purchased by young, healthy adults who don't often need as much health care. By eating right and exercising to stay fit, you not only improve your quality of life, but you protect against needing extensive health coverage. Still, you have insurance that protects against financial devastation if you do suffer a highly unanticipated health event or trauma.

Higher Out-of-Pocket Risks

The most significant downside of a high-deductible plan is that you potentially pay more out-of-pocket if you have a claim. On a $1,000 deductible health policy, you likely have to pay that amount on one single hospital visit. Similarly, if you take a $1,000 deductible on an auto plan, you normally end up paying the full amount after any type of significant accident or event. Another way of looking at it is that you have lower benefits. Because of the increased out-of-pocket potential, you might want to have some savings to cover the deductible when it comes up.

Less Use of Services

A common indirect drawback of carrying high-deductible coverage is that some people avoiding using services to guard against paying a deductible. This factor is especially concerning for people that avoid going to the doctor or hospital in important health situations. You may also get tempted to avoid paying out for repairs to your home or vehicle. Your avoidance could ultimately lead to more damage to the property.