When you have insurance, one key component of your policy is the deductible amount. The deductible is the portion of a claim that you must pay out-of-pocket before the insurance company covers the remaining costs. Many people wonder if they can change their deductible right before filing a major claim in order to reduce their upfront costs. This article will examine what happens if you try to alter your deductible immediately prior to submitting an insurance claim.
How Insurance Deductibles Work
The deductible is the amount you pay toward a covered loss before your insurance policy kicks in. For example, if you have a $500 deductible and file a claim for $2,000 in damages, you would pay the first $500 and your insurer would cover the remaining $1,500.
Deductibles apply per policy term. For auto and homeowners insurance, the policy term is usually 6 or 12 months. Your deductible resets to the stated amount at your renewal date each year.
When initially signing up for coverage, you select your deductible, usually choosing from options like:
Higher deductibles equate to lower monthly premiums, while lower deductibles mean higher premiums. So you must find the right balance for your budget.
Why Would Someone Change Their Deductible?
There are a few reasons a policyholder may want to change their deductible amount:
To Lower Upfront Costs – If you know you have a major claim on the horizon, you may want to reduce your deductible to minimize the out-of-pocket expenses you’ll pay on the claim.
To Reduce Premiums – If money is tight, you may elect to raise your deductible so your monthly premiums are lower. This saves money in the short-term but means you’ll pay more later if you have a claim.
** Significant Life Changes** – Major events like marriage, divorce, a new baby, or new home might warrant re-evaluating your deductible needs.
Starting a Business – For commercial policies, deductible decisions are especially important. New business owners may reassess as the business evolves.
So in certain situations, requesting a deductible change can be reasonable. But can you make a last-minute switch right before filing a claim in hopes of paying less up front?
What Happens If You Try to Change the Deductible Before Filing a Claim?
Unfortunately, attempting to suddenly change your deductible immediately prior to filing a claim will likely not work in your favor. Here are some things to keep in mind:
Deductible Changes Aren’t Instant – Even if you request a deductible change as soon as you know you’ll have a major claim, the adjustment won’t take effect immediately. The insurer still has to review and approve the change. It will likely take at least a few days, if not weeks, for a new deductible to be activated.
The Old Deductible Will Still Apply – If you successfully submit a claim within the same policy term that you changed the deductible, the claim will be subject to the deductible amount that was active when the loss occurred.
Example: Your deductible has been $500 for the past 6 months of your policy. Last week, a hailstorm damaged your roof. You request to lower your deductible to $250. But when you file the roof damage claim, it will still be subject to the $500 deductible in place at the time of the storm.
Underwriting Prevents Abuse – Insurers anticipate this type of behavior and have measures to prevent abuse. Requesting a deductible change triggers underwriting review. If it seems highly convenient you want a lower deductible right when you have a major claim, it will raise red flags.
Significant Justification Is Required – To change a deductible, you’ll need a compelling reason beyond simply wanting to minimize a pending claim cost. Expect to provide documented proof to justify the change.
Beware Claim Denials or Investigation – Attempting to manipulate the deductible may actually backfire. Your claim could be denied or trigger fraud investigation. It’s wiser to maintain honest communication with your insurer.
Best to Plan Ahead – If high out-of-pocket costs are a concern for you, it’s best to proactively elect a lower deductible when you first obtain coverage. Assuming you qualify medically and financially, scheduled deductible changes raise fewer concerns than urgent changes requested mid-policy.
Overall, while deductible changes are allowed in certain circumstances, attempting to hurriedly alter your deductible right before filing a major claim is likely to be ineffective and inefficient.
How to Change Your Deductible the Right Way
If you do wish to adjust your deductible, here are some tips for doing it properly:
Check your policy terms – Some policies may have rules about how often deductible changes are allowed or require advance notice before a change takes effect.
Ask your agent to submit the request – Having your agent communicate the request improves the chances it will be approved without issue.
Be prepared to justify the change – Whether it’s financial hardship or a major life event, have your reasoning backed up with documentation.
Understand approval is not guaranteed – Insurers ultimately reserve the right to decline deductible change requests that seem suspicious or unjustified.
Consider waiting until your renewal date – This is when deductible updates are most common and don’t raise any concerns about convenience related to a pending claim.
Apply the change prospectively – Accept that the updated deductible will only apply to claims occurring after the change takes effect, not prior incidents.
Avoid repeatedly flipping your deductible – Frequently alternating between high and low deductibles can also draw insurer scrutiny.
How Changing Your Deductible Affects Premiums
It’s important to note how increasing or decreasing your deductible affects your insurance premiums:
Lower deductible = Higher premium – Decreasing your deductible raises your monthly premiums, sometimes significantly. Be sure you can afford the increase.
Higher deductible = Lower premium – When you increase the deductible, your premiums go down. This saves money short-term but shifts more costs to you when there is a covered loss.
Weigh tradeoffs carefully – Make deductible changes only after evaluating both sides of the premium vs. out-of-pocket cost equation. Don’t base the decision on one scenario alone.
Forecast upcoming claims – If you’ll soon need to file a major claim, paying higher premiums in the preceding months to have a lower deductible may be beneficial in the long run.
Consider your risk tolerance – How much risk can you take on via higher out-of-pocket costs before needing the policy coverage to kick in? Choose a deductible aligned with your means and comfort level.
Deductible decisions involve important tradeoffs between premium savings and preparing for large claim expenses. Consider all angles before submitting requests to increase or decrease your deductible.
Common Questions about Deductible Changes
Here are some frequently asked questions regarding changing deductibles on insurance policies:
Can I change my deductible any time I want?
While deductible changes are allowed, there are often restrictions on frequency and timing. Many policies only allow updates at renewal or with advance written notice. Insurers typically don’t permit last-minute changes.
What if I realize my deductible is too high after an incident occurs?
Unfortunately, you cannot retroactively alter your deductible after an incident or loss happens. The deductible in effect at the time always applies.
Will my premium update immediately if I change my deductible mid-policy?
Premium increases or decreases correlated to deductible changes typically do not adjust your premiums until the next billing cycle. Notify your agent in advance for accurate rate estimates.
Can I change my deductible back and forth to save money?
Frequently alternating your deductible will often get denied or limited in frequency. Insurers frown upon deductible flipping solely to manipulate premiums and out-of-pocket costs.
Does my agent or insurer have to approve a deductible change request?
Yes, deductible updates must be approved, as they impact your premiums and projected claims. Providing reasonable justification improves the chances your request will be authorized.
The Bottom Line
Trying to suddenly lower your deductible right before filing a major insurance claim seems appealing. But due to underwriting controls, you’ll still likely pay the original higher deductible already in place at the time of loss. Communicate openly with your insurer and insurance agent for guidance on how to properly enact deductible changes when warranted. With foresight and planning, you can select an appropriate deductible that balances premium savings with claim cost protection.
TIP: Know Your Deductible Before You File A Claim
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