When purchasing car insurance, you’ll have many decisions to make. There’s no one-size-fits-all policy, so you’ll have to figure out what best fits your particular needs, requirements, and budget. While most states mandate a minimum liability coverage for bodily injury and property damage, other aspects of your car insurance coverage are up to you. Your car insurance agent should go over the types of coverage available, the limits, any associated deductibles, and the effects these have on your car insurance premium. When you sit down to review the various quotes prepared by your insurance agent, you may want to ask about high deductible car insurance and whether or not it’s right for you.
What Are the Types of Car Insurance Coverage Available?
Most insurance companies offer four main types of car insurance, including:
Liability Coverage
Most states mandate a minimum level of liability insurance to drive on state roads. Liability coverage is split into two categories: bodily injury and property damage. If you cause an accident, any medical bills incurred by others involved in the accident will be covered under bodily injury liability. Most policies have a per person and per accident limit. Property damage coverage will cover any property damage, including the other driver’s vehicle, with a per accident limit.
Uninsured/Underinsured Motorist Coverage (UM/UIM)
If you’re involved in an accident with a driver with no insurance or minimal insurance, UM/UIM will cover the difference in your medical bills via your insurance policy. Some states require UM/UIM, while others are required to offer it, but ultimately you can opt to reject the coverage. You may or may not have a deductible associated with this coverage as it varies by state.
Comprehensive Coverage
Comprehensive coverage will pay for the repairs or replacement if your vehicle is damaged due to theft, vandalism, or an act of nature such as hail. Comprehensive coverage is optional unless a lending institution requires you to carry it on a vehicle with a lien or lease attached. Comprehensive also includes a deductible.
Collision Coverage
Another optional insurance coverage is collision coverage, which pays for damages to your vehicle if you hit an object or another vehicle. A lending agency may require this coverage on a vehicle with a lease or lien, and you will also have a deductible associated with coverage.
Other insurance options include roadside assistance, rental car reimbursement, personal injury protection, medical payments, full glass coverage, and more. Check with your car insurance agent to ensure you have the coverage to protect yourself and your investment.
What Is a Deductible?
When selecting insurance, you may be asked to choose a deductible on several types of coverage. This is an amount that you agree to pay out of pocket toward any claim you turn into your insurance company. The amount of deductible you have is entirely up to you, as long as it falls between $100 and $2,000 for most insurance companies. The most common deductible amounts are $500 and $1,000.
If you carry both collision and comprehensive coverage, you can elect to have the same deductible. Perhaps you want a higher deductible on collision because you trust your driving but don’t trust Mother Nature. Either way, it’s up to you. The best solution is to have your car insurance agent run various quotes reflecting the different deductibles so you can decide which fits your budget best.
How Does Your Deductible Affect Your Car Insurance Premium?
If you opt for high deductible car insurance, you agree to pay more towards any claim or potential damages. A high deductible is appealing to your car insurance company so that they will offer you a lower car insurance premium in exchange for the high deductible. Vice versa, if you opt for a low deductible, your car insurance premium will go up because you no longer have as much at stake.
How Do You Decide on a Deductible Amount?
There are two questions you need to ask yourself when deciding on a deductible amount:
- How much out-of-pocket expense can I afford if I have a claim?
- How much can I afford for car insurance premiums?
Have your agent run various quotes so you can see how much difference there is between a $500 and a $1,000 deductible. You may find the difference is less than you thought. However, the difference will be staggering if you compare a $100 deductible to a $2,000 deductible.
You want to pick a deductible that is doable for you and your budget. If you opt for high deductible car insurance to save money on your premium, you need to come up with that amount should you make a claim. You don’t want to have a $2,000 deductible that you can’t afford, which means that your car doesn’t get to be fixed right away. Is saving a few dollars each month on a premium worth it if your car sits in the shop for months on end because you don’t have money for the deductible?
The key is to go with the highest possible deductible that you can reasonably afford. If possible, put the amount of deductible in savings, so you’re prepared should you ever need it.
What Is the Payback on High Deductible Car Insurance?
Do the math to figure out how much you’re saving with a lower car insurance premium when opting for high deductible car insurance. Is the amount of money you’re saving equal to or more than the amount of the deductible?
For example, moving from a $500 deductible to a $1,000 deductible will save you 10% on your car insurance premium. You currently pay $1000 a year on your premium, but with the high deductible, that will become $900. With this change, you’re saving $90 a year on car insurance premiums by increasing your deductible by $500. That means it would take approximately five-and-a-half years to make up the difference. If you go without an accident, it is worth it. But, if you have a claim, you may not have saved anything in the long run.
When researching car insurance, talk to your agent about the factors involved in calculating your car insurance premium. Factors include your age, driving history, credit score, location, and vehicle type, as well as coverage, limits, and deductibles. Get several quotes within your budget to determine the best insurance coverage for your needs before selecting one.
At FIXD, our mission is to make car ownership as simple, easy, and affordable as possible. Our research team utilizes the latest automotive data and insights to create tools and resources that help drivers get peace of mind and save money over the life of their car.
