We would all like to pay less for our car insurance. So before you pay that monthly premium, you should know that you do have the choice to pay less! Your insurance company might not have told you, but one of the easiest ways to save money on your auto insurance is to raise your deductible. But, how does raising your deductible lower your monthly costs? It’s a choice that requires a little math and self reflection.
A car insurance policy contains three different kinds of coverage: liability, collision and comprehensive. There is no deductible for liability coverage, which is mandatory in nearly all states and covers the cost of an accident when you’ve been found at fault. However, there are individual deductibles for collision and comprehensive coverage if you so choose to add them to your policy.
Raising your deductible saves you an average of $180/year
Having higher collision and comprehensive deductibles lowers your monthly premium. The graph above highlights the dramatic difference in monthly payments between someone who has chosen a $250 comprehensive deductible and a $1,000 deductible.
But, let’s say you increase your deductible to $1,000 or even $2,000; you could end up saving $300 to $400/year on your insurance premiums. These savings would could come in handy if you happen to have a claim and need to pay for it. However, if you do not have any claims over 3 years you could be saving a total of $900 to $1,200!
What is a comprehensive deductible?
A comprehensive deductible is the amount you have to pay out of pocket for vehicle damage before your insurance kicks in to help cover the total cost. For example, if you have chosen a $1,000 comprehensive deductible and then acquire damage to your car that is given a repair quote more than $1,000, you would first have to pay your $1,000 share before your insurance will throw in for the remaining cost.
What comprehensive covers and does not cover
Comprehensive car insurance will cover repairs or replacement of your car for damages unrelated to an accident. This means damages caused by fire, theft, vandalism, natural disasters, falling objects, or hitting an animal. These are the more common causes of damage that would be covered, but for specifics you should contact your car insurance provider.
Is comprehensive coverage state-required?
No,it is not legally required for you to have comprehensive coverage by any state. Many, if not most states, will mandate that you have property damage liability which requires your carrier to pay for any damage you cause to someone else’s property or car. Insurance to cover your own property in the event of some type of accident is not required.
How to choose a deductible that’s right for you
It is important to understand that raising your deductible means you are taking a risk with your money. If you have to file an accident claim, you must have the money on hand to pay your deductible. So if you’re someone who lives from paycheck to paycheck, it would be more beneficial for you to keep a low deductible, like $250 or $500. You can handle the monthly payments just fine, but a surprise, high deductible payment if you have an accident would be disastrous. If you’re someone who can afford to keep a savings for such surprises then a higher deductible would make more sense for you.
Collision and comprehensive deductibles are also important to offset high repair costs if you drive an expensive car. Also, if you are leasing or financing a vehicle your lienholder may require you to purchase comprehensive coverage at a specific deductible.
Overall, most insurance companies recommend $500 deductibles. This is because most small claims cost less than or around $500 to repair, so you always end up paying out of pocket. If you choose to raise your deductible, it’s a good idea to bank those premium savings until you reach the amount of your deductible in case of an accident.
Keep in mind that a comprehensive deductible makes insurance premiums the most expensive. Collision adds less to your premium costs because it is a more basic type of coverage.