How to decide your auto insurance deductible
Choosing a deductible is an important part of choosing the best type of car insurance for your needs. When deciding which type of coverage, you need to decide the amount of insurance you want and the type of insurance you should get (collision or comprehensive). The next step in buying car insurance is to decide the amount of auto insurance deductible you need and can afford.
Choosing a higher deductible will lower the cost of your annual car insurance premiums. That sounds like a good idea to save money, but it’s not always a smart idea. The deductible is the amount of money a driver pays out of pocket before the insurance company refunds expenses due to loss or damage to the car.
If you have a car insurance policy with a $1,000 deductible and you get into an accident where the damage is $4,000, you will need to cover the first $1,000 of expenses and your insurance company will refund the difference of $3,000. It’s important to understand how it works, because you don’t want to be stuck needing to come up with a large chunk of change all at once.
Why do people choose a high auto insurance deductible?
You may be wondering why drivers would choose a high deductible if it means they’ll pay more money out of pocket if they have an accident, or end up with damage or theft to their car. Choosing a higher deductible is one of the quickest ways to reduce your annual car insurance costs.
When purchasing car insurance, don’t be quick to choose the highest deductible. It’s a smart idea to consider all the options and compare the costs between various deductibles such as $250, $500 and $1,000. From there you can decide if the higher deducible is worth the lower auto insurance premium cost.
Find the deductible you really need
Choosing the right deductible amount depends on your driving record and use of the car. If you only use the car occasionally during a few months of the year, a higher deductible can make sense because the usage is very low.
However, if you’re frequently on the road and use the car to commute for work along with road trips, your time spent on the road is higher. Therefore, your chances of having theft or damage to the car are also higher. You want a deductible that makes sense for your needs, but also fits your budget.
Keep cash savings on hand to cover the auto deductible
If a higher deductible for a lower premium is the best solution for your auto insurance policy, it’s important to remember that it’s also an expense that can pop up anytime – and you need to be prepared for it.
If you choose a higher deductible on your car insurance in Canada, it’s a good idea to have some money (equal to the deductible amount) put aside in case you need to file a claim. This way, you have the cash savings on hand to pay for the deductible if you have theft or damage to the car. Keep the money in an account with easy access in case you have an emergency.