It's not easy to settle on the right deductibles for your policy. Browse around the Web or ask your friends, and you'll likely find advocates for one of 2 approaches: raise deductibles to get a cheaper car insurance premium, or lower them to reduce out-of-pocket expenses if you have to file a claim.
Let's take a look at the pros and cons of each side to help you determine the option that's right for you. But first, let's make sure you know how car insurance deductibles work.
what is a deductible anyway?
Deductibles are what you'll pay out of pocket before certain coverages can kick in. If you have comprehensive and collision coverages on your policy, for example, you'll need to select deductibles for each coverage. Because accidents happen, choosing a deductible you can comfortably afford is key to finding the right car insurance.
If your car is vandalized to the tune of $7,000 of damage, and you have a comprehensive coverage deductible of $1,000, you'll pay $1,000 and your insurer will pick up the rest of the tab. Your deductible also applies in collisions, though you won't have to pay your deductible when another driver is at fault — unless you live in a no-fault state.
Many coverages, like liability, don't have deductibles.
higher deductibles = more out-of-pocket expenses
There's no doubt about it: Having high comprehensive and collision deductibles on your car insurance policy will mean paying more out of pocket if you run into a streetlight or your car is stolen. But high deductibles also mean lower rates for your monthly or biannual insurance payments, so many people suggest pumping up your deductible to save money. By doing this, you're assuming more financial risk behind the wheel.
Will raising your deductibles really result in that cheap car insurance policy you'd hoped for? Let's say you've got a $1,000 deductible on your new car's comprehensive coverage when a tree branch falls on your car's roof, causing $700 of damage. Since your deductible is $1,000, it doesn't make any sense to file a claim, so you just head to the body shop and soak up that $700 repair bill on your own.
If you do decide to save by raising your deductibles, make sure you set some money aside in an interest-earning account. That way you'll have the money handy should you ever need to file a claim with your car insurance company.
lower deductibles lead to better coverage
Now let's say you revised your deductible before that tree branch fell, this time electing for a $100 deductible. Doing so bumped your 6-month car insurance premium up $42. And now you can file a claim, pay just $100, and have your insurance company handle the rest of the bill.
It's your choice. If you do need to file a claim, you'll be over the moon if you lowered your deductible and paid slightly higher monthly insurance rates.
If you'd like expert help choosing the car insurance deductibles that are right for you, we're happy to provide it anytime. Give us a call at 1-800-ESURANCE (1-800-378-7262).
The basics of deductibles
Get a more in-depth understanding of car insurance deductibles before you set your own.
Why you pay what you pay
Deductibles are just one of many factors that determine what you pay for your policy. Learn about the others here.
More about car insurance
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