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How To Choose The Right Car Insurance Deductible

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If you are trying to lower the cost of your auto insurance, your first move may be to increase your deductible, but this is not always the best move. Insurance deductibles are more complicated than they first appear. There are several things you must consider before raising it. Here are a few of them.  

Your Auto Insurance Deductible Is Not Like Your Health Insurance Deductible

One of the first things you must consider is how your auto insurance deductible works. Unlike your health insurance deductible, which you only meet once per year, you must pay your auto insurance deductible every time you have an accident or experience damage to your vehicle. 

For example, if you have an at-fault accident in March and your deductible is $1000, you would have to pay the first $1000 before your insurer would pay your claim. If a tree limb falls on your vehicle in July, you would then pay another $1000 to have your vehicle repaired, and if you were very unfortunate and someone keyed your vehicle in November, another $1000. 

Unfortunately, you can not foresee how often you will have to use your insurance throughout the year. While this may be an extreme example, you would pay $3,000 out-of-pocket in deductibles for that year. Considering the difference between a $500 and a $1000 monthly premium, you may have paid less out-of-pocket with the lower deductible and higher monthly premium. 

Your Bank Account Often Dictates Your Deductible

How much money could you quickly come up with in the event of an accident? This answer will be different for everyone. You may make that choice if you have significant financial resources and no problem paying a higher deductible. But if you are financially strapped—living paycheck to paycheck—a slightly higher monthly premium and lower deductible may be a better choice. 

If you choose a higher deductible and lower monthly premium, try to take the savings between the two policies and place them in a saving account. Establishing a saving account for auto repairs will ensure you can fix your vehicle if something happens. 

Your Coverage May Not Require a Deductible

You only have to worry about speaking to your auto insurance agent about a deductible if you carry full coverage auto insurance. Deductibles apply to the following levels of coverage:

  • Collision
  • Comprehensive
  • Uninsured/Under-insured Motorist Coverage 

These are all policies that will fix your vehicle if something happens. If you only carry liability insurance, a deductible will not apply. 

Contact a local auto insurance agency to learn more.