Low Deductible Or High Deductible - What is Best?

As a consumer, I am always trying to make ends meet. So I am concerned that I don't over-insure myself and my family. Some insurance is required by law, for example, car insurance. But do I need term life? Young families buy term life so that if something happens to one of the parents the children will be properly cared for and assured of a good college education. Do I need health insurance? Health insurance is only necessary if you get sick or injured, but we can never foretell that. So we do need health insurance.

One way to avoid becoming "insurance poor" is to take out health insurance with a high deductible. My advice is that we ask ourselves a question: "If I had a major medical catastrophe, how much money could I find to pay for it?"

If you have no problem finding $5,000 to pay the deductible in the case of a major catastrophe, then a $5,000 deductible is a good option. If you think you could only find $1,000 in a crisis, then $1,000 would be a reasonable deductible. People generally choose a deductible based on their ability to meet it.

Let's look at a hypothetical example of the variation in annual insurance premiums for a couple between the ages of 30-34 with two children under nine years (no maternity coverage):

$250 deductible - $1976 annual insurance premium

$500 - $1793

$1,000 - $1389

$2,500 - $1214

$5,000 - $ 965

$10,000 - $ 834

You will note that the savings between the $5,000 and the $10,000 deductibles are minimal. You only save $131 in annual premium but pay twice as much deductible. So it would be best not to go higher than the $5,000 deductible.

With the $5,000 deductible this family's monthly premium is $80. The difference in premium between the $250 deductible and the $5,000 deductible is $1,000. If you have no major medical problems in five years, you will have saved $5,000, which you would need to meet the deductible. And this is a very good plan.

Many folks think that going with a high deductible saves a lot of money. You do save, but sometimes not so much. Note the changes in annual premium for a 30-34 year old male based on various deductibles:

$250 deductible = $1,275 annual insurance premium

$500 = $1,120

$1,000 = $871

$2,500 = $772

$5,000 =$632

$10,000 = $498

The largest saving of $249 comes between the $500 and $1,000 deductible. Going from $1,000 to $2,500 saves only $99, and from $2,500 to $5,000 only saves $140. In fact, going from $1,000 to $5,000 saves only $239 per year even though you have added $4,000 to the deductible. So increasing the deductible does not produce great savings.

Up to the present time, with all companies, the $1,000 deductible seems to be the most cost-efficient.