Ensuring You Can Afford the Deductible on Auto or Homeowner's Insurance

Typically, the way insurance works, whether it is auto or homeowners, is the higher the deductible, the cheaper the plan is per month. For example, if you choose a $1,000 deductible, your insurance would be cheaper than if you picked a $500 deductible. While I think it is important to save money, I also feel very strongly that you do not set your deductible so high that you can't afford it when something happens.

During the storms on the night of Jan. 29, 2008, we found ourselves without power. About 9:30 p.m., a large tree fell on our house, taking out part of the roof and totaling one of our vehicles. That whole night I sweat it, thinking "How are we going to afford the deductibles on the insurance?" I thought they were set at $1000 each. When we pulled out our policy, I was so thankful to see that our homeowners' insurance deductible was only $500. I was totally relieved.

When we first took out the policy, I honestly don't remember them asking what we would like our deductible to be. Had we picked the $1000 deductible, we would be in much more of a financial pinch than we are now. That would be twice as much as we're going to have to pay out of pocket. Sure, it's costing us more each month, but in the event of an emergency like this, we don't have to stress as much about being able to afford this deductible.

As far as auto insurance goes, I believe our deductible is set at $1,000. I am going to be calling soon to confirm, but if that's the case, I am going to see how much more each month it will cost us to lower it to $500. If it's not too much of a difference, I will change it.

I do think that you have to look at your own financial situation and determine what deductible works best for you. If you are driving an older car, and you can afford the higher deductible, go for it. However, if you are younger and can't really afford the $1000 deductible, have it at $500 and just pay a little more each month. For homeowners insurance, I would recommend having your deductible be $500, unless you've got a pretty nice sized emergency fund you wouldn't mind tapping into in case of an emergency. Sit down, run some numbers, and do what makes sense for you. Call around for some different quotes. Be informed! A knowledgeable shopper is the best kind.