Generally, automobile insurance rates go down when you agree to pay more out of pocket in case of claims. It is a trade off that may work for some motorists. However, it doesn’t mean that you could save money too and it may not be worth the increased risks. This post looks at its function in finding a good balance between coverage and premium, who could possibly benefit from this strategy and offer some recommendations as to the optimum level.
Is a Lower Auto Insurance Deductible Better?
According to studies and surveys more than half of motorists look for smaller figures when they are searching policies. If you can get them lower for the same price, it would be great. However, what we are discussing here is not about what we would ideally like. It is about appreciating the way vehicle insurance deductibles work and considering playing around with them to get the best value. It is true that you can save money by raising them with most companies. However, there are risks too and that is why you need to look at the numbers and figure out if it is worth paying extra to keep them suppressed or take a chance for tomorrow because you are paid today to do so.
When Is High Deductible Car Insurance Beneficial?
Increasing them would be a valuable tool for people who are in a tight budget situation. Maybe they are considering dropping Collision and Comprehensive coverage because premiums are too expensive. Alternative option would be to raise the out of pocket expense (in case of a claim) and keep the coverage if you can achieve sufficient rate cuts. At times, you may be able to save couple of hundred dollars by raising deductibles five hundred dollars more on Collision and a little less on Comprehensive.
At first look it does not appear to be an attractive proposition. You promise to pay $500 more if you have an accident but you only get $200 discount. The point to remember is that you would have to spend $500 extra “if” you have an accident. Otherwise, you have kept $200 in pocket and hasn’t given anything in return.
This example goes to show the importance of personal views and experience. A good driver would be happy to take such a deal in the view that he or she is unlikely to get into any trouble. And perhaps an unconfident one should stick with standard offerings, as the exposure may be too much.
Who Would Benefit the Most from Increased Deductibles?
Having a clean record for several years is a clear indication that you won’t have many issues in the future. Usually vehicle insurance premium calculations are based on statistical probabilities just like this one. Also, where you live and how much you drive can be important factors to take into account. People who live in relatively quiet part of the country with low crime and traffic and not driving excessively may consider chances of having a claim in the near feature to be low. This would mean that neither you nor the carrier would have to spend any money.
At this stage, you should get a quote with raised out of pocket figure and see the difference between it and the standard option.
Who Shouldn’t Increase Automobile Insurance Deductibles?
People would know when their chances of having claims are high. Then, they should think twice before making changes to a policy. In the above example, a $200 saving could easily turn to $300 loss if you end up paying $1,000 out of pocket instead of the $500 usual amount. Even you are confident about your skills think where you live and how much you drive. Living in a city like Los Angeles and traveling 30,000 miles a year leaves people open to many exposures.
Also, personal finances should be considered. You cannot really accept to raise it to $1,000 with an empty bank account because you cannot pay for it should something happens. That is why people buy insurance in the first place, as they don’t know what might happen.
Why the Negative Correlation between Premiums and Deductibles
One of the key reasons is that policyholders who take more risk in case of claims are less likely to make small ones because they won’t get much compensation from them. To the contrary to common belief auto insurers are very much bothered with small losses. The problem is that they can total up pretty fast since there are too many of them. They like to discourage people from making them and the way of doing that is cutting rates for people who are happy to take on more risks to a point that they cannot easily make small claims any more.
There is a relation but it isn’t a linear one. Rates may go down a lot once a perilous policyholder wants to increase them because underwriters know that they are avoiding a serious risk here. However, they equally know that a good driver isn’t likely to bother them anyway and they are not all excited about seeing them choose this option. And the prices reflect this viewpoint.
At the end, choices should be based on personal circumstances and driving records. In most cases, the answer depends on how much you can save by increasing deductibles. That is why you should get quotes with lower and higher amounts and compare them.
People shouldn’t worry about getting a few car insurance quotes from different companies or for different levels of protection. This is how you make sure you get the best value. It is unlikely that someone else would carry out these analyses and tell you what is the optimum policy for you.