How to choose deductibles to get cheap car insurance
Have you wondered if you could cut down on your premium amount for your car insurance? You must have definitely thought about it; not once but many times. Now you don’t have to worry anymore if you are overpaying for your car insurance. Let us tell you how to use the right deductibles to save a lot of money on your car insurance in the long term.
Well, you might have heard how deductibles are a great way to reduce your premium rates. But often people end up being confused on how to use deductibles to their advantage. For many, deductibles can be a confusing concept. It is totally okay to not have understood deductibles and utilized it so far. Let us explain how they work and how you should approach deductibles so that you have the best coverage and the lowest premium possible.
How Does a Deductible Work?
To put it simply, deductibles is the sum of money that you will have to pay before your insurance company comes into the picture. Let us say you have a deductible of $500 and you are involved in an accident where the damage cost comes up to $2000. In this case, you will have to shell out the $500 from your pocket and the insurance company will pay the remaining amount of $2500. Deductibles are therefore generally known as out-of-pocket expenses.
Deductibles apply to every claim, which means that you will have to pay the deductible amount every time you file a claim. This may force many to say that deductibles are a bad idea. But deductibles come with equally appealing benefits that make the risk of higher deductibles acceptable. The main point of having deductibles is that it lowers your premium considerably. This makes deductibles a great opportunity to improve your car insurance coverage and at the same time, not overpay your insurance premiums.
Generally, a car insurance policy is broken down into different types of coverage. In that, deductibles only apply to collision and comprehensive coverage. Collision coverage involves the coverage for the damage done to your car when you are involved in a crash with another vehicle. While, comprehensive coverage involves all cases in which your car is damaged but you are not at fault. When it comes to liability insurance that includes bodily injury and property damage coverage, there is no opportunity to have deductibles for it.
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How do deductibles impact insurance premium rates?
Deductibles are all about the insurance holder sharing the risk with the insurance company. This allows insurance companies to lower the premium rate as they are now covering lesser risk as compared to before. Simply put, your deductible amount will always be inversely proportional to your premium rate. This means that increasing your deductibles will lower your premium rates and lowering your deductibles will increase your premium rates. Meanwhile, you must remember that with higher deductibles you may save on your premium, but you will also have lower coverage. You need to analyze your unique situation and make the right trade-off.
How to choose the right deductible to get maximum discounts on your premium?
Firstly, when it comes to deciding the deductible amount, you need to think about how much you could afford in case of an accident. You may need to create a emergency fund or see that you have set apart a little from your savings. You may be needed to pay the deductible multiple times in a year, so it is better to keep money handy. Remember that the money you save on premiums can be used to add up on your ‘emergency deductible fund’. Most car insurance companies give you an option to choose a deductible amount upto $1500. With the deductible amount you agree to pay, your premium will be recalculated and will be lower than before.
Ask yourself these questions before choosing a deductible:
- What are my chances of getting involved in a car accident?
- Do I have enough savings to pay the deductible amount?
- Will the premium savings make a higher deductible work financially?
To calculate the chances of an accident, check if you:
- Drive mostly during peak times?
- Frequently travel through busy intersections?
- Have a new driver listed on your policy?
When you have got the answers to these questions, you will be able to calculate the chances of an accident. If you think you are at a higher risk, then it is better you go for a lower deductible. If you have a clean driving record and have rarely gotten into accidents in the past, it is financially wise to go for a higher deductible. The only thing you need to make sure is that you can afford your decision, because if you are unable to pay your deductible, the savings you have earned on your premiums will not matter in the end.
How much will you save at the end?
Finally, depending on how high you increase the deductible, you could save an average of anywhere from 5%-40% on your car insurance premium. The higher you increase your deductible, the more advantageous it becomes for you. If you are able to increase your car insurance deductible from $200 to $500, you will save 15-20% on your auto insurance premium. If you go up to $1000, this could potentially save you 40%. You could save thousands of dollars if you strategically increase your insurance deductibles.
If you insure yourself for 5 or 10 years and have no claims, then taking advantage of a higher deductible, you will end up saving thousands of dollars on insurance. Make sure you don’t make the smaller claims and maintain a clean record if possible. A 30 year old woman with a clean driving record living in California would be able to save about 50 percent on her annual collision and comprehensive premiums by raising her deductible from $250 to $2,500.
If you a driver with a clean driving record and are driving in a less accident prone area, then you can increase your deductible to the maximum amount possible. But if you drive through a high accident prone area and have a poor driving history, you can start with a low deductible amount and gradually push it up if possible. When you are able to analyze your risk correctly and understand the savings possible, you will be able to decide on the right deductible amount for yourself. Using the right tradeoffs, deductibles will allow you to pay the least premiums on your car insurance and at the same time get the right amount of coverage. It is advised that you always compare the top three insurance providers providing you the best quotes and only proceed after thorough analysis.