Things to Consider When Choosing Your Auto Insurance Deductible

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One of the easiest ways to reduce your monthly insurance cost is to carry a higher deductible amount. After all, the more risk you’re willing to shoulder on your own, the less your insurance company will charge you to provide coverage.

However, the key phrase in that paragraph was “the more risk you’re willing to shoulder.” You’ll have to pay more out of pocket to set the situation straight if something happens. And, that’s just one of the things to consider when choosing your auto insurance deductible.

How Deductibles Work for Car Insurance

The terms of an insurance policy typically stipulate the company will pay for repairs or damages up to a certain amount. However they also specify you’ll pay the injured party, or the repair company, a certain amount of the compensation on your own.

This amount is deducted from the amount the insurance company covers, thus it is referred to as your “deductible.” The most common amount is $500, but they can be as low as $250 and usually go up to about $2,000. The larger the amount you agree to pay on your own, the less your policy will cost.

What is a car insurance deductible? It is the amount of money you are required to pay for vehicle repairs before your auto insurance company pays the remaining amount of the cost, up to the amount of your coverage.

There are several important questions you need to ask or try to get the answers to when it comes to choosing auto insurance deductibles.

  • What does your emergency fund look like? in other words, Can you afford your deductible?
  • What is the value of your vehicle?
  • What are the various costs for different deductibles?
  • What is your risk?
  • Is a vanishing deductible a good option?
  • Is it sensible to choose a different deductible for different coverage?
  • What are your chances of being involved in a car accident?
  • How much do you have saved?
  • Will the premium savings make a higher deductible work financially?

Ensure You Can Afford Your Deductible

It’s one thing to agree to accept a $2,000 deductible, but it’s quite another to come up with that cash on demand. This is particularly true in light of the fact that some 40 percent of American families would struggle to deal with a $400 unexpected expense.

If you’re carrying a high deductible and you’re unable to cover it, your insurance company won’t step in to save the day. It will simply fork over its agreed-upon percentage of the settlement amount and you’ll be left to your own devices to cover the rest.

How Much Your Car Is Worth

An older car with a low replacement value might require less insurance than a newer vehicle upon which you have a car loan. In the latter case, you’ll need to carry more insurance — to make sure the loan will be paid off if the car is damaged beyond equitable repair (totaled).

The more the car costs to insure the higher the deductible you’re likely to carry to keep the premiums affordable. However, if you have an older car that won’t cost that much to replace, it doesn’t make sense to carry a high deductible, because the premium will be pretty low anyway. Further, the cost to replace the vehicle might only be slightly higher than the deductible itself.

What Sorts of Risks Do You Face?

Insurance companies typically want to know whether your car will be used to commute back and forth to work or if it’s a car you’ll only drive occasionally for pleasure. If the car is to be driven everyday, the odds of an incident are higher simply because it is exposed to the world more frequently.

What is the traffic like where you live? Do the people around you routinely break other traffic laws that could lead to a higher risk of an accident? Do you have to park your car in an area where it’s more likely to be stolen, experience vandalism or suffer an uninvited break in? Do you have a teen driver, or a similarly inexperienced one, you have to cover?

You’ll be better off carrying a lower deductible if any of these apply, even though it will make your monthly payments higher. The likelihood of a claim is greater.

Pondering these things to consider when choosing your auto insurance premium could save you from experiencing a case of false economy. Yes, it might look like you’re saving money on the surface with a higher deductible, but a huge expense is likely to be waiting for you just out of sight.

How about considering Vanishing deductible?

Vanishing deductible is a good option if you are constantly struggling with saving an emergency fund. You do pay an extra insurance premium to get the reduction in deductible. You would be better off saving money in your emergency fund. Basically if paying a deductible would cripple you financially the vanishing deductible could be helpful.

Basic Automotive Insurance Coverage Explained

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Note: These tips are strictly for educational purposes and should not be taken as legal advice.