3 times you should reconsider your auto insurance deductible
Unfortunately auto insurance can be costly, and sometimes you may feel like you do not have much control over your coverage. Luckily your deductible is one of those factors that you can have some measure of control over when it comes to your auto insurance, and can even save you money. Depending on your situation, it may make sense to raise or lower the dollar amount of your deductible. Here is a breakdown of when you should consider raising or lowering your deductible.
What is a deductible?
So, let’s start this off by going through what a deductible actually is. In short, a deductible is the amount of money that you agree to be responsible for paying out of pocket in the event of an at fault claim. This means if you put forth a claim and your deductible is $500, you must pay the $500 before your insurer will cover the rest of the costs associated with your claim.
When it makes sense to raise your deductible
When it would save you money - Believe it or not, actually raising your deductible can save you money. Yes, in the event of a claim you will have to pay out a larger sum of money in order to get any compensation from your auto insurer, but this can still lead to savings. By raising your deductible, you actually lower the cost of your monthly premiums. Your auto insurer uses your level of risk as a customer to determine the cost of your insurance, and those who opt for a high deductible are seen as lower risk. By taking on a larger deductible you are taking on more of the cost from your insurer, saving them money when you put forth a claim. So, working out in your favor, a higher deductible classifies you as lower risk, which gives you lower insurance premiums.
When it makes sense it lower your deductible
When the value of your car depreciates– When the value of the car doesn’t reflect the cost of your deductible it may be time to reevaluate. It doesn’t make sense to pay a $1000 deductible on a car that is not worth that much. As a car ages its value will naturally dissipate, so it is a good idea to know roughly the value of your car and opt for a deductible that reflects that.
When you don’t feel financial able to pay a large deductible – A high deductible equaling lower monthly premiums is great, but it is not worth the savings if you don’t believe you would be able to pay the deductible in the event of a claim. You need to find a good balance between a high deductible and lower premiums. There is little point in paying less on your premiums if the deductible is out of your budget. If something happens in your life where you find your financial situation change, it would be a good idea to have a look at your deductible and determine if it is still feasible.