Having enough insurance is important in today’s world. Something can easily go wrong very quickly. Accidents happen that can damage property and make any home virtually uninhabitable. People can get sick for a long period of time after an accident. Such an illness can limit their ability to work and earn a living. This is why it is useful to have insurance to help protect against such possible problems. Insurance can help cover potentially damaging fiscal losses and ease the financial pain of an accident. Having insurance on hand can also help provide the policyholder with the ability to avoid fiscal problems that can wipe out their savings or cause them serious problems such as the loss of their home.
Basic Insurance Terms
When buying insurance, people are often confronted with terms that may be unfamiliar to them. One concept that is highly important yet often not fully understood is that of the deductible. The deductible, simply put, is the amount of money that the person must first pay in the event they need to file a claim. This is true of all types of insurance from car insurance to health insurance to homeowner’s insurance. The policyholder will be held responsible for the deductible amount before they expect any money from the insurance company to kick in.
A policy with a low deductible means that the person holding the policy is only the hook for a relatively small amount of money in the event they need to make a claim. For example, the policyholder may have thousands of dollars in damage. With a policy that has lower deductible, the policyholder can expect most of the damage they have suffered to be compensated. Lower deductible policies are commonly used with auto insurance policies where the damage from even a minor attack may be quite extensive.
A high deductible means that the person will need to pay more money first before they can file a claim. Higher deductible policies are often commonly used for health insurance policies. A health insurance policy of this kind can be helpful in making sure that the person has enough coverage in the event of a serious medical issue requiring months of treatment.
The Benefits of Low Deductibles
Policies with lower deductibles are typically more expensive than other types of policies. The policyholder may pay as much as ten to twenty percent more upfront. However, once the insurance premium is paid, the holder can relax knowing they have all necessary coverage to fully meet all potentially serious problems. This kind of deductible can be ideal for the person who has enough cash on hand to pay the entire cost of the policy upfront. Such a payment may even be tax deductible. In that case, paying for the insurance policy can be even more beneficial.
Choosing a Higher Deductible
Many people opt for an insurance policy with a higher deductible. Buying a policy of this kind has many advantages. Upfront costs are typically far lower than a policy with a lower deductible. This can be ideal for someone who is currently experiencing a cash flow problem or would prefer to use the funds for other purposes. A higher deductible, for example, can be perfect for someone who is healthy and not likely to get sick in the immediate future. A higher deductible can also be perfect for someone who would prefer to save funds for other uses such as a down payment on a house or helping to fund a child’s college educational expenses.