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Insurance foolishness: Insurance deductible

7 ways you're being foolish with insurance
Insurance deductible © Pakhnyushcha/Shutterstock.com

It's smart to raise your homeowners insurance deductible to save money on your premiums. But be careful because that can be an extremely foolhardy move if you don't have cash reserves available.

"Your deductible should only be as high as you can comfortably swallow," says Tim Dodge, director of research for the Independent Insurance Agents & Brokers of New York in Syracuse. "If you keep $5,000 or $10,000 in a checking account, you can handle a higher deductible, but if your emergency fund has $500 in it, then you really shouldn't take a $2,500 deductible on your home insurance policy."

On the other hand, says Tom Bigoski, owner of the Thomas Bigoski Insurance Agency in Gainesville, Va., insurance is meant to cover a catastrophe, not a $400 repair bill.

"Increasing your deductible can save you hundreds that you can put away in an emergency fund," he says. "Just make sure your insurance deductible isn't higher than the maximum amount you can afford to pay if you had to make a claim tomorrow."

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