How to Choose an Auto Insurance Deductible

With rising gas prices it is becoming more expensive to own and operate a vehicle. While car owners may not be able to do anything about the rising gas prices, they can take a good look at their auto insurance policy to shave a few dollars here and there to reduce the cost of the auto premium.

Instructions

1. Look at your finance or lease papers. If the vehicle still has an outstanding loan or is leased, check the documentation before making changes to your auto insurance policy deductible. Many banks and leasing companies set forth the maximum deductible they will accept. If you signed a contract agreeing to carry a lower auto insurance deductible, you must honor the terms of the contract.

2. Evaluate the age and value of your car. Because the value of most vehicles decrease as they get older, it’s financially beneficial to increase the auto insurance deductible for older cars. The closer the vehicle value gets to the insurance deductible, the wiser it is to drop the comprehensive coverage in total. Carrying a $1,000 auto insurance deductible for a vehicle that is worth $1,000 doesn’t make financial sense.

3. Determine how much out-of-pocket expense you can absorb. Saving a few hundred dollars on a higher deductible sounds wonderful until you have your first auto insurance claim. If you are unable to pay the out-of-pocket expense for the higher deductible, then it’s best to go with a lower deductible.

4. Analyze the actual premium savings versus the deductible pay out. Have a talk with your insurance agent and ask her to provide varying quotations of the potential premium savings for raising the auto insurance deductible. Request quotes in increments of $250. Analyze the premium savings versus the out-of-pocket expense and select the one that makes the most sense for your pocketbook.

5. Open a deductible account at your bank. Since the deductible is the amount that the policyholder must pay per claim, putting the money away in advance in a bank account benefits the policyholder in more ways than one. In addition to earning income if deposited in an interest bearing account, as the bank deposit increases, the policyholder can increase the auto insurance deductible to an amount in accordance with the amount saved in the account. Increasing the deductible decreases the premium.

Tips & Warnings

• Most drivers don’t want to consider having more than one accident in a year; however when evaluating your out of pocket expenses, take into consideration the possibility of having more than one incident during a policy year. It’s better to be prepared than surprised.

Resources

• Progressive website for more auto insurance information
• Nationwide Insurance