This week’s installment of “Insider Tips” is about deductibles. I will focus on auto insurance deductibles in this blog, but it also applies to your other insurance policies as well. The deductible that you choose- either a small one or a large one- greatly impacts your insurance premium.
First of all, what is a deductible? A deductible is your share of a claim, which is stated as a specific dollar amount. Simply put, the higher the deductible that you choose, the lower your premium is going to be because you have more “skin in the game” if there is a claim. Conversely, the lower your deductible equates to a higher premium because the insurance carrier is going to have to pay more money in a claim situation and you are more likely to file a claim with a lower deductible.
So what is a good deductible to choose? When people call our office, we will ask them how they chose the deductible level they are at now. In most cases, the current agent chose it for them or they chose $500 because they think that is the normal amount people should have.
This is where it is a good idea to speak with a professional that can help you choose the proper deductible with you.
For auto insurance, statistically speaking it is much more likely that you will file a claim under your comprehensive coverage than your collision coverage. Comprehensive coverage covers things like hitting a deer, car fire, hail damage, car theft, broken/chipped windshields, and vandalism. Collision coverage is for car accidents that cover your car when you are at fault in an accident.
Therefore, an insider tip would be to carry a lower comprehensive deductible and a higher collision deductible. Collision deductible premiums are more costly than comprehensive deductibles, so it makes sense to go with the highest deductible that you can afford or feel comfortable with. Note that if you have a loan on your vehicle, the bank will require that you carry both collision and comprehensive and usually the highest deductible that they will allow will be $1000. Also, the math on comprehensive deductibles work out in going with a smaller deductible because the price difference between a $500 and $250 or$150 deductible is very small. Whereas going with a smaller deductible on collision has a much higher price differential. There is usually a “sweet spot” that your insurance professional can help you with.
Most comprehensive claims do not affect your premium in a big way. Collision claims will absolutely affect your insurance premium- and they will follow you around for up to 5 years!
When shopping for auto insurance, it is important to have a conversation with your insurance agent about deductibles. You need to discuss what you feel comfortable with from a premium and what you can afford out-of-pocket in case of a claim perspective. I would suggest looking at raising that collision deductible and lowering that comprehensive deductible to see if that will save you premium. Why pay more than you have to by making these simple adjustments to your policy?