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Transcript
- Lucas: If our money conversations have helped you think about a decision differently, consider supporting us directly. It keeps this show ad-free and helps us keep digging into these specific numbers. The link is buy me a coffee dot com slash fexingo. Luna: Yeah, if today was worth a coffee to you, that's the place. Thanks for keeping the lights on. Lucas: Alright, let’s get into it. We’ve spent the last twenty episodes dissecting how inflation eats your streaming subscriptions, your gold miners, your college savings, and even your coffee habit. But there is one area where the erosion is not just quiet—it is structural and deeply misunderstood. I’m talking about your insurance deductibles. Luna: Wait, my deductible is a fixed number on my policy, right? Like five hundred or a thousand dollars. How does inflation change that? Lucas: That is exactly the trap. The face value of your deductible stays the same, but the purchasing power of that dollar has collapsed. When you file a claim, the insurer pays the full cost of repairs or replacement minus your deductible. If repair costs have risen faster than your premium increases, your effective deductible as a share of the total loss skyrockets. Luna: So if a repair costs twice as much, you’re paying the same cash amount, but covering a smaller slice of the actual damage. Lucas: Precisely. Let’s look at the data. As of early September 2026, the core CPI is sitting at 336.8. That means prices for goods and services excluding food and energy have climbed significantly since we started tracking this series. Meanwhile, the Fed Funds rate is flat at 3.63 percent, which suggests banks aren’t rushing to offer higher yields on short-term deposits to offset those costs. Luna: Right, so the money in your checking account isn’t growing fast enough to cover the rising cost of fixing your car or your roof. Lucas: Exactly. And here is the concrete detail most people miss: insurers adjust their premiums based on expected future claims, but they don’t always lower deductibles to match reality. In fact, many carriers are raising deductibles to keep premiums affordable. So you might see your premium go up ten percent, but your deductible jump from one thousand to two thousand dollars. Luna: That sounds like a nightmare. You pay more monthly and risk losing more upfront. Lucas: It is a double squeeze. Think about auto insurance. Labor rates for mechanics have surged due to wage inflation, and parts costs are up because of supply chain pressures. A simple fender bender that used to cost eight hundred dollars to fix now costs twelve hundred. If your deductible is one thousand, you are paying out of pocket for the entire job plus four hundred extra. The deductible hasn’t changed, but its bite has. Luna: I had a friend who recently filed a home claim for storm damage. She said her contractor’s quote was way higher than she remembered from five years ago. Lucas: That is textbook construction inflation. Lumber, roofing materials, and skilled labor have all seen sharp price increases. The National Association of Home Builders reports that construction cost indices have been volatile. When you combine that with a static deductible, you are essentially subsidizing the insurer’s risk model with your own depreciating capital. Luna: So the strategy isn’t just about having insurance, it’s about calibrating the deductible to your current liquidity. Lucas: Spot on. Most financial advisors suggest keeping three to six months of expenses in an emergency fund. But if your insurance deductibles are rising faster than your salary, that buffer shrinks rapidly. You need to review your policies annually, not just when you shop around. Check the line items for labor and material surcharges. Luna: Do insurers actually disclose how much of the premium is going toward inflation adjustments versus profit? Lucas: Rarely. They talk about loss ratios and expense ratios, but they don’t break down the inflation component. That’s why you have to be proactive. Look at your own recent quotes. If you haven’t filed a claim in three years, ask for a loyalty discount that reflects the lower risk, not just the general market hike. Luna: And maybe consider raising your deductible only if you can afford the hit, rather than just taking the lowest premium option. Lucas: Yes. The lowest premium often comes with the highest deductible, which transfers the most risk to you. In an inflationary environment, that risk is expensive. If you have a high-deductible health plan, for example, make sure your HSA is funded adequately. The tax advantages help, but the principal must grow to meet the inflated costs of care. Luna: This reminds me of that episode we did on sinking funds. It’s basically the same principle applied to risk. Lucas: It is. A sinking fund for your deductible is a smart move. Set aside a specific amount each month that matches your deductible, invested in something safe but yielding above inflation. If the Fed cuts rates later this year, as some analysts predict given the stable 3.63 percent level, those yields might drop, so lock in what you can. Luna: But with the 10-year breakeven inflation at 2.34 percent, it’s hard to find truly safe assets that beat the cost of living. Lucas: That’s the challenge. Treasury yields are competitive, but they barely clear inflation after taxes. Money market funds are better, but still constrained by the Fed’s current stance. The key is to treat your deductible reserve as a separate bucket. Do not commingle it with your general emergency fund. Luna: Separate buckets for separate risks. That makes sense. It prevents you from dipping into rent money when your car needs a new transmission. Lucas: Exactly. And remember, insurance is a hedge against catastrophic loss, not a savings account. Don’t try to optimize it for yield. Optimize it for liquidity and coverage adequacy. If your deductible is 2.5 times your monthly income, you are over-exposed. Luna: That’s a good rule of thumb. Two and a half months of income maxed out on a single deductible seems steep. Lucas: It is. Many people have deductibles equal to six months of income without realizing it. They think they are protected until the first major event hits. Then they realize their liquid assets are gone. Review your policies this week. Call your agent. Ask for a breakdown of your coverage limits relative to current replacement costs. Luna: Replacement costs, not purchase prices. Right, because building a house today costs way more than buying one did five years ago. Lucas: Yes. Extended replacement cost endorsements are crucial for homeowners. They automatically increase your coverage limit by a certain percentage if reconstruction costs spike. Without it, you could be underinsured by tens of thousands of dollars in a severe weather event. Luna: So the lesson is: inflation doesn’t just eat your groceries; it eats your safety net’s thickness. Lucas: Perfect summary. It thins the net until you fall through. Protect your purchasing power by ensuring your deductibles are manageable relative to your liquid wealth, not just your income. Luna: I’ll be checking my auto policy tonight. Good thing to do before the next quarter starts. Lucas: Do it sooner rather than later. Markets move fast, and insurance companies move slower, but they always catch up. Staying ahead of that curve is how you keep your money working for you, not against you. Luna: Thanks for the wake-up call. See you next time.