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Monday, December 29, 2014

How much you can save by increasing car insurance deductibles?

Car insurance deductibles
Raising a car insurance deductible typically lowers monthly premiums
You will hear or read experts talking about buying sufficient coverage. It would be the thing to do if you had no money pressures. However, most of us have a fixed income which needs to cover all of our expenses. So, something has to give at times to make it to the end of the month. In such situation you should try to reduce the risks by finding a good balance between keeping the costs down and covering almost all the risks. 

What are car insurance deductibles?

Generally, auto insurance policies come with deductibles for the collision and comprehensive coverage. These are the parts that cover material losses suffered by the policyholders. Deductibles serve several purposes for the insurers. One of them is to reduce number of small claims. When people realize that they will have to pay some of the losses out of their own pockets anyway they are likely to give up on making a claim. This is especially true for small claims and fender benders.

Use deductibles instead of cutting coverage

Increasing deductibles is still controlled risk. Their value can be better understood when you consider that increasing auto insurance deductibles can actually allow you to keep larger coverage. You would need to reduce some of the essential coverage to get the same savings. Especially dropping certain covers completely is not advisable unless your vehicle isn’t worth much money.

Even you think that you wouldn’t need coverage unless you have a big accident it is a safety net to fall onto. One of those covers that you should have plenty of is liabilities coverage. You have no way of predicting how much the losses suffered by third parties can be. They have the potential of reaching to thousands of dollars that you should have enough cover to provide the security you need.

How much you can save by increasing deductibles?

There are several studies and calculations to figure this amount. However, it is important to note that the actual figure will change depending on your personal circumstances and the company you apply to. Not every company will offer large savings and a few of them will offer higher than the usual.

Still, it is not difficult to estimate how much you would save. For example, if you increase your collision deductible from $500 to $1,000 you would save around 10% on average. This may not be a lot of money when you are already getting low premium offers. However, it could be significant when your premium is too high for you to manage.

If you increase the same deductible from $500 to $2,000 you could save about 15% percent. But $2000 is not a small out to pay out of your pocket in one go. So, you need to think about if you can pay this money when you have a claim. 

You should be prepared when you increase deductibles

As mentioned above increasing auto insurance deductibles has a downside as well. When the money is tight you may not have enough money in your savings account to make one deductible payment. If you were to have two accidents in one term you will definitely be paying a lot more than you saved. If you think that you may have more than one claim in the next six month or a year you should think twice before you increase deductibles.

Image: Biswarup Ganguly, "Multiple car accident", GFDL, CC BY-SA 3.0