You may be able to buy a zero deductible policy, pay nothing towards certain claims or required to pay deductibles by law in some states. Deductible is the portion of a claim you need to cover out of pocket before your insurer pays the rest of the damages. Reducing the out of pocket money in case you have a claim may be appealing to some drivers. That is why some carriers are offering zero or vanishing deductible car insurance to attract certain type of drivers.
You transfer most of the risks relating to driving and owning a vehicle to your insurer when you buy a full cover car insurance policy. However, policyholders would tend to claim for every little thing if they weren’t required to contribute to the costs. Essentially, deductibles allow insurers to share some of the risks with their policyholders. In return, policyholders get cheaper and cheaper quotes when they accept higher and higher deductibles. You need to think about this fine balance between reducing your risks and paying cheaper premiums.
Paying lower or no deductible sounds good. However, it may mean that you actually end up paying more money over the years by way of premium than what you can save when you have a claim thanks to lower deductibles.
Why May Zero Deductible Auto Insurance Cost More?
According to Insurance Information Institute (III), you will have to pay higher premium for lower, zero and vanishing deductibles because you are sharing less risk with your insurer, in comparison to higher or standard deductible policies. Deductible is the amount policyholders contribute to each and every claim that reduces the size of claim settlement. Actually, higher deductibles deter many people from making any claim when the damages are low. In other words, they choose to pay the whole damage out of pocket.
As a general rule, the higher the deductible the lower the premium gets. Insurance companies reward policyholders who are willing to take more risk by accepting higher deductibles. Also, higher deductibles reduce the number of small claims. That is why you can probably get better rates when you choose higher deductibles.
How Do Car Insurance Deductibles Work for Different Covers?
Policies normally stipulate different levels of deductibles for each type of coverage. Generally, standard full coverage auto insurance policies come with separate deductibles for Collision and Comprehensive coverage. The former is usually higher than the latter. And most liability covers don’t have any deductible to pay.
Motorists can increase standard deductibles offered with typical policies sold and they are likely to save enough on premiums to do so with most companies. According to insure.com, policyholders can save around $170 on average by increasing a $250 deductible to $500.
On the other hand, many companies may not be willing to reduce their standard deductibles. However, there are companies that offer zero deductible Collision and/or Comprehensive Coverage but they may only offer such policies to good drivers with proven records. Furthermore, some states may not allow zero deductible policy sales. For example, companies may not be allowed to sell Personal Injury Protection without deductibles. You need to check the position when you are getting quotes and comparing them.
Vanishing Deductible Auto Insurance
As discussed above, most insurers prefer to have good level of deductibles on their policies mainly to deter small claims. But some companies offer to reduce the initial amount every year, as long as there is no claim. It is a way of rewarding good drivers and making policies more attractive to buy. Motorists may have a better chance with disappearing deductible car insurance as likes of Nationwide, Allstate and The Hartford are currently offering such policies.
Each company may have different rules but here are some of the basics of disappearing deductible policies.
- The policy starts with a standard deductible of about $500 for collision.
- Deductibles get reduced every year by a certain amount. In case of Nationwide, the deductible is reduced $100 for every claim free year and it can reach to zero deductibles.
- Once you have a claim, you may start all over again or start with slightly lower than the initial deductible.
- It may be possible to get immediate rewards for choosing such a policy. For example, Allstate offers a reduction from the start without the need to wait for one year.
- Usually, these policies are more expensive as they are sold as a premium policy or there is a flat fee to pay when you choose a disappearing deductible auto insurance option.
Drivers need to crunch the numbers before choosing policies with more favorable deductible options. There is a high chance that you will pay more in terms of premium over the years than what you can save on deductible, if you ever have to make a claim. Remember that you need to pay the premium regardless but you can only save with a lower deductible policy when you have a claim.
Implications of lower, vanishing or zero deductibles suggest that insurance companies must be compensated enough to offer such policies. In a way, insurers are letting their applicants bet on having an accident and the fee for the bet is collected as an additional premium. This bet only pays when the policyholder has a claim.
Good drivers wouldn’t be much concerned with the level of deductibles or prefer to increase them to save on premiums. If you haven’t had an accident for a long time and see the likelihood of a future claim slim you wouldn’t pay to reduce your deductibles. But you may be happy to pay a little bit more for this option when you are not confident that you can avoid a claim. In other words, personal preferences and circumstances play an important role in your choices.
You can see that getting and comparing online car insurance quotes is always a good idea and it is a quick way of checking the current market. Why not spare a few minutes and get a few quotes using our quote platform? It is fast and free. Otherwise, you wouldn’t know if you can save money or if there is better coverage on offer.