The basics of an auto insurance deductible are very straightforward. Your deductible is simply the amount of money you have to pay out of pocket, before your insurance kicks in. It is typically a feature of the collision, comprehensive and/or uninsured/underinsured property damage liability portions of your car insurance policy.
Example Of How Your Auto Insurance Deductible Works
To better understand how your deductible works let’s look at two examples. For these examples we’ll assume you have a standard deductible of $500 for both collision and comprehensive insurance. This means you’ll have to pay for the first $500 of any repairs or damages to your car, but then you’re insurance company will pick up the rest of the tab.
In our first example let’s say you’re driving in the rain and temporarily lose control of your car and hit a guard rail. Your front headlight is smashed, your bumper is cracked and your alignment is messed up. You then visit a mechanic and get an estimate for repairs. They come back to you and say it will be $1,500 to repair everything.
You check with your insurance company that this seems like a fair estimate. To prevent insurance fraud, insurance companies have guidelines as to how much repairing your car should cost, given the make/model, local labor costs and the parts required. Once, they sign off on the repairs you’ll be left to pay $500 yourself and they will pay the remaining $1,000. Either directly or they’ll reimburse you.
A second example could be the following. Let’s say you decide to drive to your city’s downtown for a nice dinner without the kids. You have a wonderful evening, only to come back and find your car has been broken into and your stereo has been stolen. Fortunately it was not too expensive, only costing $200.
Now you can and probably should report that your stereo was stolen to your insurance carrier. However, in this case they will not pay you any money for your stolen stereo as its value is below your $500 deductible. In this case you’ll just have to pony up the money and pay for it yourself.
Thus, as you can see your insurance company only pays for costs that go above and beyond your deductible. You are always left to pay up to the deductible limit for any repairs, damage or theft that happens to your car.
Raising Your Deductible To Save Money
With that proviso in mind let’s briefly examine how auto insurance deductibles affect your car insurance rates. Obviously, the collision and comprehensive portions of your auto insurance policy cost money. And generally speaking a standard policy will include a $500 deductible for each of those types of coverage.
Yet, if you raise your deductible from $500 to $1,000 you can save up to 40% on the collision and comprehensive portions of your policy. Just keep in mind that you will be on the hook for all costs under $1,000 with this type of high deductible insurance policy.
So you should never raise your deductible above what you can comfortably pay out of pocket yourself. Moreover, as your car gets older it may make sense to drop collision and comprehensive coverage altogether, rather than raise your deductible. For example, if the Blue Book value of your car is less than $1,000, then it really makes no sense to raise your deductible to $1,000, as even a total loss would not meet your deductible limit.
Before doing anything, just be sure to speak with your insurance agent or insurance company about what type of coverage is right for you given the car you drive, your assets and what protection you require.
Declining, Decreasing, Disappearing And Vanishing Car Insurance Deducible Programs
Finally, we should just touch on a recent phenomenon in auto insurance. The program has different names such as, declining deductible, decreasing deductible, disappearing deductible and vanishing deductible, depending on the company, but the basic concept is the same. Essentially these programs will lower your deductible each year you remain claim free.
The idea is that it is a reward insurance companies give you for being a safe driver. The amounts can add up too. For example, some companies will drop your deductible by $100 per year until you reach a zero dollar deductible. The two most prominent programs are Nationwide’s Vanishing Deductible and The Hartford’s Disappearing Deductible. Other insurance company’s may offer this type of plan if you ask.
Seems like a good deal, you get a lower deductible, so long as you remain a good driver. Yet, in a recent Fox Business report they found that these plans may not be everything they’re cracked up to. So before agreeing to any such scheme, do the math to see if it will really benefit you.
To find out how much raising or lowering your deductible could affect your car insurance rates, please use this form to get quotes. You can get quotes for a variety of coverage levels to find the one that’s just right for you.