You might have heard that one way to save money on your car insurance is to increase your deductibles. But while increasing your deductible might cut your premium, it could increase your financial burden for vehicle repairs. You should only set your deductibles based on your ability to pay for vehicle damage. Here's how to think about saving on your rates while not arbitrarily increasing your deductible.
What Are Deductibles?
A deductible is a sum of money that your insurer subtracts from the cost of a claim. Therefore, they agree to pay for the cost of damage minus your deductible value. You will pay the deductible cost and your insurer will pay the remaining cost of the claim.
When Do They Apply To Coverage?
Deductibles might apply to several parts of your car insurance:
- They almost always apply to your collision and comprehensive coverage.
- They might apply to uninsured/underinsured and PIP coverage. Some insurance providers do not have these requirements, though.
- Liability insurance does not contain deductibles.
- Certain types of damage might have lower deductibles than others. Some insurers apply lower deductibles for glass damage, for example.
So, what will happen if you choose a $1,000 deductible on your collision coverage?
- Your insurer will evaluate the cost required to repair your vehicle. If the cost to repair the vehicle is less than the $1,000 deductible, then your insurer will not pay.
- If the cost of your vehicle's damage is more than the cost of the deductible, then you pay $1,000 towards the repairs. So, if you have $5,500 in damage, you pay $1,000 and your insurer cuts you a check for the remaining $4,500.
- Should the car be a total loss, your insurer will usually compensate you for the car's cash value at the time of the wreck. This is not the cost of a new car, nor is it the cost of your remaining car loan. The insurer will subtract the deductible from the final cash value settlement.
Never choose a deductible you cannot afford. Since you must pay any amount up to the cost of your deductible, you have to be able to make those payments. Therefore, if a $1,000 deductible is not in your budget, then a $500 deductible might be.
Why Do They Impact Your Car Insurance Rates?
Deductibles affect car insurance rates because the amount of the deductible you choose influences how much risk your insurer assumes. All else equal, if you carry a $500 deductible as opposed to a $1,000 deductible, then your insurer will have to pay more if you make a claim. Therefore, your risk to the insurer goes up. As a result, they might have to raise your rates.
Because of this, you might feel tempted to increase your deductible. But remember, you still have to be able to pay your deductible cost yourself. Simply choosing the highest deductible cost to save on your rates is not responsible.
How Can I Balance Deductibles And Premiums?
It is always better to choose a deductible you can afford anytime. Don't worry about the potential of this driving up your premium. Many factors besides your deductible determine your rates. Having a clean record, keeping your vehicle safe and having good credit can all help you save money, for example. Therefore, you will more likely find a fair price, no matter what deductible you choose. Your insurer is also able to apply discounts to your policy in many cases.
When enrolling in coverage, ask your Auto Insurance Discounters agent what your deductible choices are. Then, ask them if they have any recommendations on which one you should choose. At the end of the day, you know your ability to pay best. So, always select the deductible that will have the lowest impact on your bank account.
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