Raise the Deductible? The Break-Even: the facts

1. Raising a deductible trades a certain saving for an uncertain cost. The premium falls every year whether or not you claim. The extra out of pocket is paid only when a claim comes, and only then.
2. The break-even is the claim rate at which the two match: the yearly saving divided by the extra per claim, read as one claim every so many years. Claim less often than that and the higher deductible wins.
3. Example: raising a deductible from $1,000 to $2,500 cuts the premium from $2,400 to $2,100, a saving of $300 a year against $1,500 more on each claim. The break-even is one claim every 5 years. At one claim in ten years, the expected saving is $150 a year.
4. Over 10 years the same choice leaves you $3,000 ahead with no claims, $1,500 ahead after one, and $0 after two.
5. Small claims cost more than their amount. Many insurers raise the premium after a claim or decline to renew after two, so a higher deductible that keeps small claims off the record is worth more than the arithmetic shows.
6. The number that decides it is not the break-even. It is whether the higher deductible could be paid tomorrow, from savings, without borrowing. If it could not, the lower deductible is the right one whatever the premiums say.

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