Raising Your Car Insurance Deductible Saves You Money

Nobody likes paying out of pocket for auto damages. After all, we feel that since we pay so much for our car insurance, we should get something out of it, right? Many people regret selecting a high deductible when they end up footing the entire bill for a fender bender. But remember - you selected that higher deductible for a reason - to save money. Still, the money you save on monthly premiums isn’t of much use if your high deductible prevents you from scraping together enough to repair your car. So how do you determine what deductible is right for you?

The Choice is Yours

State law mandates that you carry at least a minimum amount of liability coverage in order to insure against the damages you may cause to other people and their property. But the amount of insurance you have on your own car is a matter of personal choice - unless, of course, you owe money to the bank. In this case, the financier of your auto loan will ensure you’re adequately covered to protect them against loss, but normally, you’re still allowed to decide what your deductible will be.

How to Make the Decision

First, you must recognize that car insurance is a financial product designed to benefit you. You need to view your deductible, and your auto insurance in general, from this perspective.

Insurance is all about risk. When you buy it from an insurance company, you are paying them to assume your risk. When you don’t buy a particular type of coverage, you are assuming risk on your own behalf. Thinking about things this way, your deductible decision is a calculated risk. You need to consider the following questions: What are the odds that I’ll be in an accident? If I am, what are the damages likely to cost? How much savings do I have that could be used to pay for damages? How much do I need to save in insurance premiums to make taking on this risk worth it?

For example, if you’re a safe driver who has never been in an accident, and you have $5,000 in savings, you might want to consider raising your deductible. If you were to raise your deductible to $1,500, under the worst case scenario, you would have to make a withdrawal from your $5,000 in savings. But if raising your deductible would save you $50 a month, you might decide that the money you save on premiums makes up for the added risk you’re assuming.

Never Pay More Than You Have To - But Never Be Underinsured

By the same token, you should never raise your deductible to a level you’re unable to pay. Remember that insurance is a financial product, and if you’re unable to pay your deductible, that product is worthless. No amount of money you save on premiums can make up for paying for a product that you’re unable to use.

The best way to save money on your car insurance is to be a vigilant consumer. Review your coverage at least twice a year, and get quotes from three or four insurance agents each time you do. Auto insurance is an increasingly competitive business, and a good agent will work with you to find the package that best fits your needs.