Car insurance is not something you can control. However, you can take some steps to make sure you are as safe as possible. The policy’s deductible allows you to make personal choices.
Car insurance deductibles are specific to the policy that the claim is for. Comprehensive and collision policies have separate deductibles. After filing your claim, your insurer will subtract the deductible from your payment if your car is damaged. What you pay in premiums can also be affected by raising or decreasing your car insurance deductibles.
It is important to understand how deductibles impact the cost of your insurance policy. This will allow you to weigh the pros and cons of changing them, in order for your financial situation to be better suited.
How deductibles impact your premiums
The deductible on your car insurance will determine how much you pay for premiums. This is because you will have to assume more financial responsibility in case of a claim. In contrast, if your deductible is lower, your insurer will assume more financial responsibility, and therefore charge you a higher rate of coverage.
You may be able to save significant money by raising your auto insurancedeductible. According to the Insurance Information Institute (III), increasing your deductible from $200 up to $500 could decrease collision and comprehensive coverage costs by 15%- 30%. According to the Insurance Information Institute (III), increasing your collision or comprehensive deductible up to $1,000 could save you as much as 40%.
There are many factors that could impact the premium savings or loss you make by changing your deductible for car insurance. You might pay a higher premium if you have more expensive cars. This would not be negated by increasing your deductible.
Key factors such as driving record, mileage driven, location, and frequency of claims can also have an impact on your insurance premium over the long-term. This will influence how much of a difference changing your deductible might make to your bottom line.
Comparing the effects of changing from a low to a high deductible may show that going higher (even if your switch carriers) won’t yield enough premium savings to justify it.
Let’s say that you shift from a $500 deductible to a $1,000 deductible and it cuts 20% off your $900 annual premium. This would reduce it to $720. Recovering the $500 increase in your deductible would take nearly three years ($180 annually in premium savings x 3) If you have never been in an accident, raising your deductible can save you money. You may end up paying more if your deductible is higher.
Ask for pricing quotes using multiple deductible options from the providers that you have shortlisted. This will help determine the best value.
Maximum and minimum deductible limits
State minimum car insurance requirements differ. Insurers may offer a range separate deductibles with minimum or maximum limits for comprehensive and collision coverages. These are the main types of coverages that usually include deductibles. There is no deductible for the liability coverage section of a policy.
According to Quadrant Information Services, the average cost of car insurance per year is $565 for minimum coverage and $1,674 for full coverage. The III states that the $500 and $1,000 are standard car insurance deductibles. However, they can vary from $100 to $2,000 in certain cases.
There are limited options for setting a minimum deductible if you have a vehicle loan or lease. Most car financing agreements stipulate a $500 maximum deductible for comprehensive and collision coverage. You may be able choose a lower amount, but not $1,000, if this is what you prefer.
What deductibles could impact your claim
When your car is damaged, and you file a claim for it, your insurer will subtract the deductible from the amount they will pay. This is up to your coverage limit. Imagine that your policy has a $1,000 deductible. Your SUV was damaged in a recent accident that resulted in a $3,500 claim. Your insurer will send you a check for $2,500 to cover repairs (depreciation not included).
Remember that your car insurance deductible applies to every claim. If you have two separate incidents during a policy period and have a $500 comprehensive deductible, you would be responsible for $500 each depending on the circumstances.
Sometimes the type of claim can impact how or if a deductable applies. Deductibles are only applicable when your vehicle is damaged or covered by insurance. If you are not at fault for an accident and you don’t live in a nofault state, you shouldn’t have to pay a car deductible. If that happens, the driver of the other vehicle will pay for your repairs via their insurance policy.
There are pros and cons to changing your deductible
There are many tradeoffs that you should consider when changing your car insurance deductible. Your comfort level and ability to pay for a claim are the consequences of your decision.
These pros and cons will help you decide whether to choose a higher or lower deductible.
Pros
- Lower car insurance premiums : In many cases, increasing your deductible can reduce premiums significantly, making car insurance more affordable.
- Flexibility Raising a deductible does not need to be a permanent policy declaration. You are usually able to choose the amount that fits your budget. Your agent and you can also reevaluate the level as your circumstances change.
- Cash flow for other expenses : You can have extra money from your premium savings to help you pay for unexpected expenses or put aside money to cover the higher deductible, before you actually need it.
Cons
- Higher financial responsibility for claims A higher deductible means that you will have to pay more upfront for repairs if a claim occurs. It is therefore important to ensure you are able to afford higher out-of pocket costs. You will be responsible for the entire cost of any damages that exceed your deductible.
- You may save a little bit depending on your particular situation. It is important to compare savings and do the math. Raising a deductible won’t make sense in all cases. It is a smart idea to look at all factors that affect the cost of your car insurance, and to compare different premium options from various car insurance companies.
- Less security: A higher deductible might not be worth the added stress of waiting for insurance reimbursement.