What is Buy-Back Deductible Insurance?
Buy-back deductible insurance is a type of insurance policy. It lets you pay a little more money each month so you don’t have to pay your deductible if something bad happens.
How Buy-Back Deductible Works
A deductible is the amount of money you have to pay when you make an insurance claim before the insurance company will pay you any money. With normal insurance, if you have a $500 deductible and $1000 in damage happens, you pay the first $500 and then insurance pays the other $500.
But if you have buy-back deductible insurance, you don’t have to pay that first $500. You already paid extra money each month in your premium payments so the insurance company will cover the full $1000 right away. This is called “first dollar coverage”.
Why People Get Buy-Back Deductible
There are a few main reasons someone might want to get buy-back deductible insurance:
- They want to avoid a big deductible payment if they need to make a claim. Having first dollar coverage gives them peace of mind.
- They are willing to pay a little more each month to avoid the risk of a big payment later.
- They want their insurance to kick in right away to cover the full amount if something happens. They don’t want to deal with paying a deductible.
How Much More It Costs
The extra premium you pay for buy-back deductible coverage depends on a few things:
- The amount of your deductible. The higher it is, the more you’ll pay to buy it back.
- The type of insurance. Some types like health insurance or car insurance cost more to get first dollar coverage.
- Your personal details like age, location, claims history. These affect your base premium cost.
Usually, it costs about 10-20% more than your normal premium to add buy-back deductible coverage. This means if you pay $100/month usually, it would be $110-$120/month to have first dollar coverage instead.
The insurance company charges more because they know they’ll have to cover the full amount of claims more often. But you get the benefit of not worrying about the deductible.
Types of Buy-Back Deductible Insurance
You can get buy-back deductible coverage on many common types of insurance policies. The most popular types are:
Health Insurance
With health insurance, the deductible is the amount you pay for medical services each year before insurance starts covering costs. Deductibles can be hundreds or thousands of dollars.
Buy-back deductible health plans have higher premiums but you won’t have to pay the deductible for doctor visits, hospital stays, prescriptions or other covered services. Insurance pays right away.
Car Insurance
For auto policies, the deductible usually applies to collision and comprehensive coverage. If you get in an accident or your car is damaged, you pay the deductible amount before insurance pays the rest to repair your car.
With buy-back deductible car insurance, your premium is higher but insurance will cover the full cost of repairs without you paying anything out-of-pocket. This can give drivers more peace of mind on the road.
Homeowners or Renters Insurance
The deductible for home or renters insurance is the amount you pay if your home or belongings are damaged and you make a claim. Deductibles are often $500 to $2500.
Choosing a buy-back deductible home or renters policy means paying a bit more each month or year. But it provides first dollar coverage so insurance pays the total amount if you need to replace lost items or repair your home.
Pros and Cons of Choosing Buy-Back Deductible Coverage
There are benefits and drawbacks to consider when deciding if the extra cost of buy-back deductible insurance is worth it for your situation.
Advantages
- Provides first dollar coverage so insurance pays claims right away
- Removes risk of big out-of-pocket deductible expenses
- Gives peace of mind and simpler finances
- Can be good for people with ongoing medical needs or tight budgets
Disadvantages
- Higher monthly or yearly premiums to pay
- Deductible may not be very high to begin with
- Many people don’t end up making claims very often
- Total costs can be higher if you don’t use the coverage
Making a Decision on Buy-Back Deductible Insurance
The choice to get buy-back deductible coverage is a personal one that depends on your specific needs, preferences and budget.
Think about how much your current deductible is and if you could afford to pay it if you had a claim. Consider how often you’ve had to pay deductibles in the past. Look at how much more it would cost for the buy-back policy.
If you want the simplest option and are okay with paying more to have first dollar coverage, then buy-back deductible insurance could make sense. It can be attractive if you have high deductible health coverage and see the doctor a lot. Or if a deductible would be a major financial burden.
However, if your deductible is already pretty low or you have a good emergency fund, self-insuring could save money in the long run. You may rarely make claims. Many people focus on the monthly savings instead.
The best choice varies from person to person. But understanding how buy-back deductible coverage works lets you assess the tradeoffs for your own situation. Decide if it’s worth a higher price for the convenience and peace of mind.
