The Best Time To Increase Deductibles On Auto Insurance

Nov 2, 2021 | Personal Insurance

We all want to save money and while insurance is important, it should not weigh a ton on your financial status. There are so many combinations that are available on the market and your insurance agent could guide you on finding the right one that suits your current financial situation. 

It is highly likely that your insurance premium gets reviewed annually to ensure that the insurance that you have is still a good match to your current needs. In this decision, changes in your deductibles should also be considered as increasing your deductibles can lower down your insurance premium and could potentially save you money. 

The Relationship Between Premiums and Deductibles

A policy premium is a monthly recurring fee that you are paying your insurance company for. The policy coverage and all the features of that coverage that they are providing are part of that. A deductible on the other hand is the amount that you shoulder in the event of an insurance claim. Not all coverages would have the same amount of deductible and both your premium and deductible changes after your policy is reviewed. Auto insurance deductibles are a policy holder’s choice and could change anytime unlike your premium which is given an annual review. 

To paint a better picture of how the car deductible works, when you file a claim due to damages on your vehicle, you are going to pay an amount straight from your pocket. Say the damages amount to $2000 and you agreed to a deductible of $500 then your insurance company would now cover the remaining $1500. 

Once your insurance company has given you their quote on what your auto insurance would be, options are available for you now on the different deductibles. This will give you the opportunity to put part of the financial risk when it comes to loss with the insurance provider. If you choose higher deductibles, this means that you are willing to take bigger risks and would be choosing as well to pay less for your premium each month. 

Insurance deductibles really differ in every state, options could vary and those that amount to $250 and $500 are the most common. 

Some insurance companies have annual or lifetime deductibles and would require you to pay the deductible for each claim. Multiple comprehensive insurance claims within the same year mean that you have to pay full deductibles for each of them. 

Different Types of Car Insurance with Deductibles

Auto insurance policies aren’t a one-size-fits-all at all. It is a package that holds different kinds of coverages and features that cater to a policy holder’s current needs. Liability insurance for example is the type that pays the other party for damages you caused including the injuries sustained in an accident. There are coverages like comprehensive and collision, PIP or personal injury protection, and uninsured motorists that are in place to provide coverage for injuries that you and the people who may be inside your vehicle may sustain because of the accident and it also includes the damages to your car.  These coverages could have a deductible that can lower the cost of the coverage.                                                    

  1. Collision 

This coverage pays for the damages to your car that involves colliding with anything including trees, guard rails, buildings, and any other object and you are at fault. This will cover damages caused by potholes too. Claims for damages to your vehicle under collision that are filed have a deductible that will apply if you have it in your policy. 

  1. Comprehensive

Covering all your bases is what comprehensive insurance can do for you. Along with Collision, this type of insurance is optional but unlike collision insurance, this is not limited to damages caused by bumping into things. Comprehensive insurance protects you against theft and other damages that may include acts of nature like storms, flooding, hail, falling branches and rocks, lightning, etc., vandalism, and other hazards. 

There are instances where a deductible applies and there are times when it doesn’t. A good example would be if you have a crack in your windshield, your insurer will just have the damage repaired with no deductible in some states. There are insurance providers who offer zero deductible comprehensive coverage which means that in cases where an accident should occur, you are not obligated to pay for anything because your insurance would cover everything. 

  1. Uninsured or Underinsured Motorist

Not everyone who drives a vehicle has coverage and not everybody would behave the same way when on the road that is why this type of insurance exists. You could be involved in an accident where the other driver has little to no coverage at all. While not available in every state, those who have imposed this have a state-mandated deductible that is generally low. 

  1. PIP or Personal Injury Protection

This coverage could be part of your policy depending on which state you are in. It helps pay for medical expenses for you including all the passengers in your vehicle. At times, it can also cover expenses that come due to lost wages or to have someone do your household tasks due to an accident. There are a lot of states with PIP deductibles and depending on how much you pay, your premium could also go up or down. 

No Deductible Requirement

Most states require liability coverage that would help cover the injuries and property damages caused to the other party or parties involved in the accident when you are at fault. You choose the amount of your coverage when you buy liability and the limits of the coverage go to the maximum amount that the insurance company will pay the other party for a covered claim. There is no deductible for liability because this extends to others to who you injure or cause damage to. Choosing optional coverages like roadside assistance or rental car reimbursement has no deductibles as well but there could be limits to the number of claims that you can file under these add-ons. 

What should I consider in choosing my car insurance deductible? 

Choosing your car deductible amount all boils down to how much you can shell out when incidents occur. It is highly dependent on your current financial status. Knowing that, here are some factors that you may want to consider when it comes to determining what your car insurance deductible should be. 

  • Premium cost versus Deductible 

Paying a higher deductible brings down your insurance premium. This means that you are willing to pay a higher amount out of your pocket when a claim is filed. Opting for a lower deductible results in a higher premium. 

  • Shouldering the Cost 

Before you decide on your deductible, it is always important to understand how much is it that you can afford once your car is damaged because of an accident. If you have a deductible of $500 and the damage is at $3000, the insurance company would cover $2500 of the damages because you have a deductible of $500. 

  • Deductible Requirements by Lender 

For vehicles that are financed or leased, there is probably a need for you to carry collision and comprehensive insurance. In this case, you should have deductibles for each of those insurances too. There are some lenders who will have a maximum deductible that you are allowed to carry so it is important that you check with the financial institution if restrictions like these or any others exist. 

When you have a loan against your vehicle, insurance companies submit payments to the loan provider. You would use the difference between insurance settlement value and your loan balance as money to put towards a new car. 

Comprehensive insurance isn’t a requirement mandated by law but if you have financing or your vehicle is a lease, the lender is likely to require that you carry this. Whatever the case, comprehensive insurance is always good to have to give your peace of mind and cover all of your bases. 

  • What you can afford

It sounds so simple but life is always unpredictable. In considering the amount of the deductible, know how much you can keep on hand should you need to pay on short notice. 

  • Vehicle Value

Knowing just how comprehensive coverage it is that you need means that you are to consider the costs to repair or replace your vehicle and in doing so, you are able to determine which deductible fits your needs. 

Older cars come with lower values and they are much cheaper to insure and this lower deductible won’t really create that much of an impact when we are looking at your finances. Just don’t choose a deductible that is very close to the replacement value of your car. 

Think about whether you need comprehensive or collision or both coverages at all. A lot of car owners don’t really see the need to insure their older vehicles against loss but again, it all comes down to your financial situation and the amount that you can pay when it comes to repairs or for car replacement. 

When do I not pay my Car Insurance Deductible? 

There are rare occasions when you are not required to pay your deductible. These instances would be:

In the event that another driver hits you and they are insured, you are not responsible for paying a deductible filed through the other party’s insurance company.  As you may now know, deductibles on your side apply only when you file a claim with your own insurance company. 

  • Diminishing deductibles

Insurance companies offer diminishing deductibles also called vanishing deductibles as an option. This feature in the policy means that the longer you go without an accident during your coverage, there would be a chance for this amount to be reduced. Talk to your insurance agent if this is a feature that is available and what would qualify to get it. 

So when should I remove my deductible? 

There comes a time when it doesn’t make much sense to maintain comprehensive or collision insurance. One reason could be that it is not that cost-effective anymore. When vehicles get older and most commonly at five years, their value depreciates and it would continue to do so as the years go by. At this stage, you have to think about whether or not it is worth keeping the insurance and what you are getting out of it. 

Choosing a deductible is a difficult decision as well when you are purchasing your coverage. Here you have to balance things and think of affordable monthly premiums and a good amount of deductible that is right for what you need as a driver and for your vehicle. While the decision gets more complicated with the different types of coverages, you now have a guide on what to consider before making changes to your deductibles if you have it already or what amount to consider before making an insurance purchase.

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You might have your own question about your car insurance coverage in Denver, Colorado or any other state for that matter. And we’re here to help! Give us a try and we won’t disappoint! Just dial our toll-free hotlines (855) 973-1202 or (855) 712-6584 today!