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You may spend more time deciding on the deductibles for your policy than you do on which liability options to include because there are so many variables to consider, and when you change one thing, it has a ripple effect on other aspects of the coverage. That, and it affects you where it hurts the most—your bank account.
The best thing about a deductible is that it only applies if you have comprehensive and/or collision coverage on your policy, and that is only necessary if you still owe money on your vehicle.
If you own or lease your vehicle, you can stop reading now!
If you do have comprehensive or collision coverage, you only pay the deductible if and when you have an accident. These kinds of coverage are about the physical aspect of a claim rather than liability for personal injury.
The deductible is the portion of a payout that the insurer won’t pay or reimburse you.
The most challenging aspect of deciding on your deductible is probably due to the “unknown factor”. You just can’t know if you will ever be called upon to pay your portion—that first $100, $250, $500 up to $1000 per accident to repair your vehicle due to your causing an accident.
Why are there deductibles? It encourages motorists to pay for small car repairs themselves rather than filing a claim. Insurance companies are in business to make money, so they have many strategies to maximize their profits.
If you have an accident and you’re not at fault, you have two courses of action available to you, depending on State law.
- You can file your claim through the at-fault party’s insurer and avoid paying any deductible.
- You can file through your own insurance company, pay your deductible, and wait for them to recover the costs from the at-fault insurer and refund your deductible.
If your state of residence has a Comparative Negligence law, however, you may, in the end, be deemed to be partly at fault, in which case your insurance company will not be able to recoup the full cost of repair to your vehicle and will not refund your deductible.
The Pros and Cons
The higher the deductible you choose, the lower your premium; the lower the deductible, the higher the premium. That’s the see-saw. The easiest way to see the big picture and all the variables so you can compare them is to request multiple quotes for each deductible option available to you. Make a chart, if the agent or insurer doesn’t present the comparables that way, and it will be easier to make sense of it.
You may feel a lower deductible is preferable because times are lean; you’re living paycheck to paycheck and can’t accommodate a large unexpected bill if you have to repair your vehicle. If you go that route, you will, of course, have a slightly higher monthly, semi-annual or annual premium payment. When the increase is spread out over the course of a year, however, it may be very manageable for you. You understand that over all, you are paying more, even though you haven’t needed the coverage. Your overall disposable income will help you determine what you can afford.
Having said that, however, before you decide which way to go you need to check your loan agreement to see if there is a maximum deductible stated.
On the other hand, you may feel that saving a lump sum with a lower premium payment and forking out $1500 to repair your car IF you ever need to, is preferable. In that case you would have a slightly lower premium payment—which is a known expense—and would save money; from 10 – 30%. Your decisions are based on your own unique position at this point in time. There is no right or wrong.
One way to take a little of the guesswork out of the “unknown factor” is to research the average repair costs for your particular vehicle. If you’re driving an old beater you will probably be comfortable with a lower deductible because the cost of repairs would be less than for a high-end vehicle.
On a lighter note, there are “zero deductible” policies out there, though not necessarily in every state, so check that out first. Several of the major insurance companies offer information on their web sites about this aspect of service. You can search on the term “zero deductible” to find them.
You may or may not qualify for zero deductible, so be sure to discuss with an agent or insurance company representative. If you’re in a high risk category (young, a new driver, have health issues, a history of driving citations or accidents) you may be denied this kind of policy.
You’ll also want to compare the numbers on a zero deductible policy vs. a standard policy to see what would work best for you. The same rules apply: the lower the deductible, the higher the premium payment. Some feel it’s worth it to have a zero deductible policy when an accident occurs, particularly when we may not be able to work as a result of it.
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