When it comes to auto insurance, there are many options to choose from. Some of these options can be confusing, but when it comes to your deductible, you will want to educate yourself so you can save money. A deductible is the amount of money you are required to pay before the insurance company will make a payment on your claim. For example, if your car sustains $1500 in damage in an accident and you have a deductible of $500, you will pay the first $500, and your insurance company will pay the remaining $1000. If you have a higher deductible, you would have to pay that amount before the insurance company would begin paying your claim.
Effect on Premium
Usually, the higher your deductible is, the lower your insurance premium costs will be, and vice versa. By choosing to carry a higher deductible, you can save hundreds of dollars per year in premium costs; this means money in your pocket rather than to the insurance company. Additionally, those who carry lower deductibles tend to make more insurance claims; making too many claims can raise insurance rates. This means carrying a higher deductible saves you even more money. If you anticipate needing the insurance only for emergencies and not for routine care, carrying a higher deductible just makes more sense.
Know Your Options
While having a higher deductible is the most financially beneficial move in the long run, sometimes you don’t have the option. Generally, you are automatically given a low auto insurance deductible if you are in one of the following situations:
You have a loan on your car and the lender prefers you to have a specific deductible
You have a lease on your car and the leasing company prefers you to have a specific deductible
You are considered to be a risky driver
If you are in one of the above situations, talk to your insurance agent to find out if there are any other policy options that would give you a higher deductible.
Because you are required to meet your deductible before the insurance company will pay on a claim, you need to be sure you have enough money in your account to cover your deductible. If you have only enough savings to cover a low deductible, it doesn’t make financial sense to have a higher deductible. However, if you are in this situation, it would be worth working toward keeping enough money in savings in order to cover the cost of the higher deductible. In other words, if you have to carry a low deductible, make a plan to carry a higher deductible as soon as possible in order to save money in the long run.
When deciding which deductible amount is right for you, it is important to weigh the savings in premium against the deductible amount. In the long run, it is almost always a better financial decision to go with a higher deductible than a lower one. Although you would have to pay out more in the event of an accident with a higher deductible, the amount you save in premiums over time will surpass your deductible amount.