How to Save Money on Your Insurance – Deductibles

Deductibles. A woefully misunderstood feature of your car insurance policy. Oftentimes, an incredibly valuable one, but, what the heck is it? Well, basically, a deductible is the amount DEDUCTED from what your insurance policy would pay in the event of a covered claim. You are basically self insuring for a fixed amount.

Here is an example: Your collision deductible is $500. You get into an accident that is YOUR fault, and it will cost $1500 to fix your car. The insurance company pays $1000, you pay $500. Ok, so now you say “I guess it makes sense to have the smallest deductible policy possible so the policy pays as much of the claim as possible, right?” WRONG! This is where people go wrong all the time. The policy, and insurance does not work that way.

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The goal of insurance companies (and YOU as well once you realize how insurance works) is to have the insurance companies pay as little as possible for claims. The more money that is paid out in claims, the less money the company has in Reserve . If the pot gets too low, they may haveto raise rates to get money back in the pot to pay future claims. Make sense? So…if folks can make smart insurance decisions, we can all help to keep rates low for EVERYONE. Let me put it in perspective for you: If everyone had high deductibles, and did not turn in small claims, insurance rates would be A LOT lower.

Most people have the wrong idea that insurance is there to give you money if you have an accident. Well…KINDA. It is really designed to help us out in situations that would otherwise be financially devastating. I hardly think that your scratching your car while backing out of the garage and getting a check from the insurance company for a whopping $100 qualifies. However, that is EXACTLY what would happen if you had a $100 deductible on collision, and you caused $200 damage to your car that was your fault. Now, multiply that scenario THOUSANDS of times, and you see where the problem lies.

HERE is how you can save money on your car insurance, save your claims history, and help to keep costs down for everyone. Listen up, this is a biggie…if you only that this lesson away from reading this, it will be worth the price of admission.

1. Make your deductibles as high as you can afford to (applies to COLLISION coverage)-If you have some savings set aside, and can cover a higher deductible in case something happens, then raise your deductible! The higher it is, the cheaper your insurance will be! ALSO, the less money that the company pays out in case of a claim that is your fault, the less your rates will go up. Keep in mind, if you are paying a deductible for collision, it means YOU were at fault, and your insurance premiums may take a hit. Lessen that hit by paying some of the claim yourself in the form of a higher deductible. The bottom line is this, when you have a low deductible, you are paying the insurance company MORE for your insurance because you MAY have an accident one day. Drive safely, raise your deductible and YOU control your money, not the insurance company.

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2. Once you raise your deductible, put that savings back into your BUDGET, not your pocket!-When you save money on insurance, but that savings somewhere else in your budget. The best place may be savings, so you will have that money set aside if something ever DOES happen.

3. If you have a small accident, and there is minimal damage, get an estimate first, you may not want to turn in the claim-I will go over this in detail in the CLAIMS section later, but it is worth mentioning here since it does pertain to  deductibles. Sometimes, folks are too quick to call their insurance agent when something happens. A lot of times, your call is reported to claims even if you DON’T end up filing the claim and getting paid. If you have an incident, it does raise your risk level, even if it is small. Personally, I would rather give someone good advice then turn in every small thing they ever did. I recommend people get estimates for small things, ESPECIALLY when it is only their own vehicle involved. Let’s say you backed out of your driveway and hit your  ailbox. The rear of your car is scratched. Your deductible is $1000. If you call your insurance company to turn in that claim, here is what happens:

  • a. You now have an at fault incident on your claims record
  • b. You COULD lose a discount because of having 0 accidents on your record
  • c. You have to start a process that is tedious and even if well intentioned, is simply not fun.

Here is an alternative scenario:

  • a. Get an estimate
  • b. Decide if you want to fix yourself, not fix at all, or turn in the claim

See, you have options!

If the damage costs only $900 to fix, and you have a $1000 deductible, then no call to your company is necessary! Fix it yourself, or don’t, you decide! Your clams history remains clean, your rates won’t go up, and you can takecare of the problem at your leisure, very simple! Ok, the advice above only applies to Collision deductibles, Comprehensive is the opposite, make the deductible as LOW as you can. Why?

Simple. A Comprehensive claim will generally not go against you in any negative way. The situations themselves are not your fault so why would you want to spend money to fix them? ALSO, The coverage is generally less expensive than collision, so you don’t save much at all by having a higher deductible. Examples: 1. A rock hits your windshield. You have a $500 Comp deductible. YOU pay for the windshield! 2. You hit a deer with your car, $500 deductible, damage is $2000, you pay

$50company pays $1500 3. Someone keys your car, $500 deductible, damage is $1000, you pay $500, company pays $500

Ok, in the scenarios above, how happy to you think you will be having had to pay ANYTHING out of pocket? Especially considering the claim won’t go against you anyways? Answer? You will be pissed. You would MUCH rather not pay anything out of pocket if the claim is NOT your fault, won’t go against you, and you won’t  save much money at all by even having a deductible. Having FULL COMPREHENSIVE, in other words, $0 deductible on comprehensive makes the most sense. Check it out with your agent or company. I think you will agree…

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Uninsured motorist coverage usually has a deductible attached to it if you have to use this coverage. Nothing you can change about this one.This has been explained to me that this is because of fraud and helps to offset the cost of folks saying they had a hit and run, but really damaged the vehicle themselves. Yes, shocking as it is, sometimes people lie to insurance companies.

Guess what? You and I pay the premiums for their lies…ALSO, the deductible helps offset the cost of even having to pay the claim for any reason. If someone doesn’t have insurance, but is at fault, and your policy pays, the premiums you paid for this coverage, coupled with the deductible, help to alleviate the financial burden on the company. Bottom line? Make your collision deductibles high, premiums will go down, save the money. Make your comprehensive deductibles low, don’t be afraid to turn in those claims.

Photo credit/Flickr/Nationwide

This entry was posted on Saturday, July 25th, 2009 at 2:07 pm and is filed under article. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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