Deductibles are a compromise between insurance premiums and your financial standing if there should be a claim. The equation is cost savings per year (depending on your deductible) multiplied by years to an accident. When you are going to be in an accident? No one knows. Two things you should know are your financial standings and the premium savings of a higher deductible.
Some policy holders feel they pay a premium for insurance, they don't want to deal with a high deductible when they have a claim. There is nothing wrong with you if you belong to that camp.
Your financial picture will also influence your deductible:
Available cash: Do you have enough in your savings or checking account to cover the deductible? Many insurance companies won't cover your vehicle until after the deductible's been paid.
Available credit: Can you cover your deductible with a credit card?
Disposable income: Do you have enough in future earnings to cover the deductible (assuming you don't have enough cash or credit on hand)?
Value of vehicle: If you have an old junker, deductibles on comprehensive and collision coverage shouldn't be an issue since you shouldn't have that type of coverage anyway
We don't recommend you determine your deductibles just from your cost savings per month. Why not? It leaves out the covered event (an accident). Do you think you will get into an accident tomorrow or next month? Of course not. But some people reading this article will.
Higher deductibles ($500 - $1000) are for people who:
Have adequate financial resources to pay the deductible
A high tolerance for risk or loss
Are broke and can only afford minimal coverage and a high deductible
Want to offset the cost of higher limits of coverage
Have an older car and want to pay less on the collision and comprehensive portion
If you dislike your car and want to replace it anyway in case of a major accident
Don't drive many miles per year (10,000 or less)
Are habitually safe drivers and (especially no fault states), don't expect to be at fault in an accident (the claim would be against the other parties insurance)
Lower deductibles ($0 - $500) are for people who:
Have limited financial resources to pay a high deductible
A low tolerance for risk or loss
Want to make up for lower limits with lower deductibles
Are secure financially but mentally don't want to deal with high deductibles in the event of an accident
Have teenage drivers or a high performance car (More likely to have a claim)
Drive many miles (15,000+)
Are over 55 and on medication (can affect your driving)
As an example, lets say I increase my deductible from $250 to $1000 on liability, comprehensive and collision coverage. I save $50 per month off my premium. I would save $600 per year, which sounds pretty good. If I am in an accident within that year, I come out negative $150 ($600 savings in premium reduction minus $750 difference in $250 to $1000 deductibles) assuming I am in no more collisions for the rest of the year. After that God willing, I am not in any more accidents, I continue to save $600.
One caveat, if you going by statistics, and have a rash of accidents, increasing your deductibles can become a disastrous move (along with your insurer cancelling you). When it rains, it pours. On the other hand, there are drivers who very rarely have an accident.
The bottom line: You are paying for insurance, make sure you can use it and only increase your deductible "if you feel lucky" (and have a high tolerance to risk). You have to calculate on your own if the annual savings you get is worth paying out a higher deductible at the time of an accident. This means getting multiple rates from multiple auto insurance plans.
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