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How Big Should My Insurance Deductible Be: $250, $500, or $1,000?

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$250 Deductible: When you live paycheck-to-paycheck and don’t have much savings

When you choose a $250 deductible, your out-of-pocket costs stop at $250 after a loss that requires an insurance claim.

Your insurance company covers your loss, minus the $250 that represents your deductible.

Choosing a $250 deductible works for people who have little or no money left at the end of a month, and whose bank accounts aren’t as large as they’d like.

The trade-off of a smaller-sized deductible: higher monthly premiums.

An insurance plan with a $250 deductible may cost 20 percent more as compared to a larger-deductible plan. So, if you can afford to pay more than $250 out-of-pocket after an accident or a loss, choose a higher deductible amount.

Otherwise, the $250 deductible works great.

$500 Deductible: When you’re getting by, and have some money saved up

When you choose your insurance company’s $500 deductible option, your insurance company caps your out-of-pocket costs to repair, replace, or remedy at $500.

Your insurance company pays for damages in full, minus your $500 deductible.

Choosing a $500 deductible is good for people who are getting by and have at least some money in the bank – either sitting in an emergency fund or saved up for something else.

The benefit of choosing a higher deductible is that your insurance policy costs less.

So, if you feel good about your cash savings and can reasonably make $500 payment after an accident or loss, choose the the $500 deductible.

$1,000 Deductible: When you’re living comfortably, and feel good about your savings

Choosing the $1,000 deductible option limits your out-of-pocket costs after an insurance claim to $1,000. Your insurance company pays all of your damages – minus your $1,000 deductible.

The $1,000 deductible is good for people who earn a healthy income and who have sufficient savings to handle unexpected events, such as car accidents, damages to the home, and the theft of valuables.

Choosing a $1,000 deductible lowers your policy costs considerably. High-deductible insurance costs at least 20 percent less when compared to low-deductible policies.

Just make sure you have at least $1,000 available in savings at all time.

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Dan Green
Dan Green

Dan Green is a former mortgage loan officer and an industry expert. He's appeared on NPR and CNBC, and in The Wall Street Journal, Bloomberg, and dozens of local newspapers. Dan has helped millions of first-time home buyers get educated on mortgages, real estate, and personal finance. Have mortgage questions? Ask Dan in the chat.

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