While almost everyone would like to save on their auto insurance, it can be a big mistake to be penny-smart, dollar-foolish. The dollar amount you set your comprehensive and collision deductibles at will be one of the most important decisions you make during the purchase of auto insurance. In turn, the deductible amounts you set will be one of the main determining factors in the amount of your monthly premium.
Any insurance policy covering comprehensive and/or collision will contain a deductible. Most deductibles in Massachusetts are $1,000 or $500; but deductible amounts do vary by state. Deductibles are the cost you will pay out-of-pocket during an insurance claim. For example, let’s say that your deductible is $500 and you’re involved in an auto accident that causes $4,000 dollars in damage to your vehicle. You will be responsible for paying the initial $500 and the insurance company will then pay the remaining $3,500. On the other hand, if your deductible is $100, then you will only pay $100 before the insurance company pays the remaining $3,900. As you can see, a higher deductible means you pay more out-of-pocket and a lower deductible means you pay less out-of-pocket after an accident. As a general rule, lower premiums are associated with higher deductibles and higher premiums are associated with lower deductibles.
It can be difficult to weigh what premium amount you’re willing to pay now against what deductible amount you’ll be willing to pay for any future claim. Be sure to take into account your comfort level; income, savings, and credit lines; driving history; and your vehicle’s value as you make your decision on the deductible amount.
Choosing a high deductible/low premium or low deductible/high premium will greatly depend on what you can reasonably afford. Imagine that you had an auto accident today – would you have funds from your household income, credit lines, and/or savings to use as your deductible? If so, what financial impact would using funds from these sources have on your family and how much would you be comfortable using to pay the deductible? If the deductible you have in mind (or already in place) is higher than what you have available or feel comfortable using, then it should be lowered. On the other hand, if you have the funds easily available to pay a higher deductible amount, then you can raise the deductible and save money on your premiums.
You also need to ask yourself how much risk you are willing to assume. Will you continue to be prepared to cover the deductible amount you set? If not, are you willing to risk having a high deductible and bet on not getting into an accident?
How often you expect to make a claim on your insurance is another factor to consider. While accidents are unpredictable and no driver wants to think they’re a bad driver, your driving history speaks for itself. If you’ve had a history of frequent fender-benders or accidents, then it could be best for you to opt for the higher premium/lower deductible option. On the other hand, the lower premium/higher deductible could be a better option if your driving record is excellent or only has a few infrequent driving incidents. You should consult your insurance agent on what the average deductible is for your driving experience and the age of your vehicle.
Don’t forget to review your auto insurance deductible at least once a year and ask yourself if your financial situation (or other factors – think teenage driver for instance!) has changed since the deductible was set and if the deductible amount is still something you could comfortably pay if you had an auto accident today.
The bottom line is this: don’t let purchasing car insurance confuse or overwhelm you. Take your time to assess your finances and circumstances to figure out what you feel comfortable with paying on both a monthly basis and at any given time an accident should occur. If you have any questions or concerns, don’t hesitate to consult your auto insurance contact at RogersGray or at your own agency.