We all want to save money. While insurance is essential, it should not weigh much on your financial status. There are so many combinations that are available on the market. Your insurance agent could guide you in finding the right one that suits your current financial situation. In this article, we will discuss increasing your deductible on your auto insurance.
Your insurance premium likely gets reviewed annually. This is to ensure that your insurance is still a good match for your current needs. Changes in your deductibles should also be considered. Increasing your deductibles can lower your insurance premium and save you money.
The Relationship Between Premiums and Deductibles
A policy premium is a monthly recurring fee you pay your insurance company. The policy coverage and all the features of that coverage that they are providing are part of that. On the other hand, a deductible is the amount you shoulder in the event of an insurance claim. Not all coverages would have the same amount of deductible. Both your premium and deductible change after your policy is reviewed. Auto insurance deductibles are a policyholder’s choice. This could change anytime, unlike your premium, which is given an annual review.
When you file a claim for damages to your vehicle, you must pay an amount from your pocket. If the damages are $2000 and you agreed to a deductible of $500, then your insurance company would cover $1500.
How do Deductibles Work?
Once your insurance company has given you their quote on your auto insurance, options are available now on the different deductibles. This will allow you to put part of the financial risk. This is when it comes to losing with the insurance provider. If you choose higher deductibles, you will take more considerable risks. You would also be choosing as well to pay less for your premium each month.
Insurance deductibles differ in every state. Options could vary; 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 you have to pay total deductibles for each.
Different Types of Car Insurance with Deductibles
Auto insurance policies aren’t a one-size-fits-all at all. It is a package with different kinds of coverages and features catering to a policyholder’s current needs. Liability insurance is the type that pays the other party for damages you cause. This includes the injuries sustained in an accident. Coverages include comprehensive and collision, PIP or personal injury protection, and uninsured motorists. These cover injuries you and the people inside your vehicle may sustain because of the accident. This also includes the damage to your car. These coverages could have a deductible that can lower the cost of the coverage.
Collision
This coverage pays for the damages to your car that collide with trees, guard rails, buildings, etc. This will cover damages caused by potholes too. Claims for damages to your vehicle have a deductible if you have it in your policy.
Comprehensive
Covering all your bases is what comprehensive insurance can do for you. This 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 like storms, flooding, hail, falling branches and rocks, lightning, etc.
There are instances where a deductible applies and times when it doesn’t. If you have a crack in your windshield, your insurer will have the damage repaired with no deductible in some states. Some insurance providers 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.
Uninsured or Underinsured Motorists
Not everyone who drives a vehicle has coverage and behaves the same way when on the road, which is why this type of insurance exists. You could be involved in an accident where the other driver has little coverage. While not available in every state, those who have imposed this have a state-mandated deductible that is generally low.
PIP or Personal Injury Protection
This coverage could be part of your policy, depending on your state. It helps pay for medical expenses for you, including all the passengers in your vehicle. It can sometimes cover expenses due to lost wages or having 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 to 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 go to the maximum amount 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. Choosing optional coverages like roadside assistance or rental car reimbursement has no deductibles, but there could be limits to the number of claims you can file under these add-ons.
What should I consider in choosing my car insurance deductible?
Choosing your car deductible amount 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 you may want to consider when determining your car insurance deductible.
Premium cost versus Deductible
Paying a higher deductible brings down your insurance premium. This means you are willing to pay more 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 essential to understand how much you can afford once your car is damaged by 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 also have deductibles for each of those insurances. Some lenders will have a maximum deductible that you are allowed to carry. Hence, you must check with the financial institution if restrictions like these or any others exist.
Insurance companies submit payments to the loan provider when you have a loan against your vehicle. You would use the difference between the insurance settlement value and your loan balance as money for 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 will likely require you to carry this. Comprehensive insurance is always good to give you peace of mind and cover your bases.
What you can afford
It sounds so simple but life is always unpredictable. In considering the deductible amount, know how much you can keep on hand should you need to pay on short notice.
- Vehicle Value
Knowing just how comprehensive coverage you need means that you are to consider the costs to repair or replace your vehicle, and in doing so, you can determine which deductible fits your needs.
Older cars come with lower values and they are much cheaper to insure this lower deductible won’t 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. Many 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 you can pay for repairs or 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:
The other driver’s fault
If 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 will be a chance for this amount to be reduced. Talk to your insurance agent if this feature is available and what would qualify you to get it.
So when should I remove my deductible?
There comes a time when maintaining comprehensive or collision insurance doesn’t make much sense. 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, which would continue to do so as the years go by. At this stage, you have to consider whether it is worth keeping the insurance and what you are getting out of it.
Choosing a deductible is also a difficult decision when 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 coverage, 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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