The Pros And Cons Of Raising Car Insurance Deductibles

Few people would say that they are getting the very best deal on their car insurance and wouldn’t change a thing. Many of us will struggle with large monthly payments that barely fit into the budget. Others will find they have to pay out far too much after an accident and didn’t negotiate the best car insurance deductible. This figure is one that could make a big difference to your finances.

What Are Car Insurance Deductibles?

If this is your first time buying car insurance, this concept may be foreign to you. A car insurance deductible is a great tool for a claim on collisions and other comprehensive areas of the coverage. Be aware that this doesn’t cover other areas of liability, such as medical costs or property damage.

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The basic idea here is that you can split your insurance policy into two sections. First, there are the costs that you must pay upfront in the event of an accident. Then there is the amount that your insurance provider will pay out. You may pay a small amount, say $100, and they pay the rest. However, this can mean that you are then left with higher premiums and monthly payments to cover the bill. Alternatively, you might pay a higher sum upfront and then less on your monthly payments.

It is important to make the right choice for your situation.

You have a choice when it comes to these car insurance deductibles and can set the amount that is right for you. There are three approaches that you can take here. You can:

  • Raise the deductible to a higher figure to lower your monthly payments.
  • Lower the deductible so that you don’t have to worry too much in the event of an accident.
  • Leave it as it is if you are a careful driver with a good payment plan

There are pros and cons to each option. Raising the deductible has its risks if there is an accident. Lowering it could be an issue for those with high premiums. Staying the same could cause you to miss out on a better deal. Let’s consider the options in more detail.

Raising Your Car Insurance Deductibles To Save Money On Your Policy

One way to save money on your premium is to raise the insurance deductible. This means that you can lower the costs of the insurance over-all and make some big savings when it comes time to renew your plan – or start or a new one. If you double your deductible – say from $500 to $1000 – you could make significant savings on your monthly payments. Studies show that this could be as much as a 15% reduction if you increase up to $2000. When you add this up over the year, this could be a significant drop in price.

The obvious benefit in doing this is that you can take that money you save and put it towards other things. It is a good money-saving scheme for those that are struggling with their household budget or have other major expenses to consider.

Also, those savings could go towards a fund for a holiday or other luxury item for the family. You may even be able to take those savings and put them back into the car. Cash saved each month could go towards upgrades and repairs. In turn, those efforts may improve the safety of the car and reduce insurance costs in the future.

The Issue Of Paying That Deductible When The Time Comes.

However, there is one big issue to consider here when agree to raise this deductible. Can you actually pay out if the worst-case scenario happens? It is easy to go into this scheme assuming that you will never have to hold up your side of the bargain. You could go through the whole year without an accident and be better off with this altered plan. Many drivers will do just that.

But, what if the worst does happen. What if you are in an accident – whether its a small bump at a red light or a major crash from a blown-out tire? What if your car is hit by someone else and you face that hassle of dealing with the fall-out and insurance claims?

This is where you have to be able to put your money where your mouth is. If you went all out on your deductible increase to $2000, can you pay that amount? Or, is that $2000 you are now taking out of your next mortgage repayment or holiday fund? How will this sudden large payout affect your budget long-term?

It is important that you plan ahead for this eventuality. Know that you have a specific amount as your insurance deductible and keep that aside for the rainiest of days. Put it in a separate saving account somewhere safe. You may read this and say: “that’s impossible! How can I put aside that much just like that?”. If so, a high insurance deductible is not the best option for you.

Think about what would happen today if you had that accident. How much could you realistically pay out without too much financial difficulty? That is the amount that you should consider as an appropriate car insurance deductible total.

Is it easier to pick a smaller amount for your insurance deductible if it brings great financial certainty?

You may find that this amount is only a couple of hundred. That’s fine. You will pay the first $200 towards your repairs and your insurance provider will handle the rest. Your overall insurance costs may be higher but you can still handle them in monthly instalments. This may be the better solution for those short on savings but good with budgeting. It might be easier in the long term to know where your money is going, even if it increases the overall costs.

Other Factors To Consider When Deciding On Car Insurance Deductibles

Financial costs and up-front payments aren’t the only things to consider with these deductibles. Other variables will determine the best approach to your policy. They can include:

  • Your track record with claims
  • Your location
  • Your provider

How Likely Is It That You Will Find Yourself Involved In Some Kind Of Accident?

This is an important question that will help you determine whether to go higher or lower on your deductible. Careful drivers in a safe neighbourhood with no claims may be able to make that gamble and go higher. In theory, you can go as high as you want if you have the certainty that you won’t ever have to pay it. However, that certainty doesn’t really exist.

You don’t know what bad weather events are around the corner or what might go wrong with the car. Also, what about the actions of other named drivers on the policy? Anyone with a bad past with claims and accidents, or an old, temperamental car, may need to go lower.

Your Location Could Be An Important Factor Here

It is sometimes surprising how different prices and services can be in different states – or even different cities. You may hear about some amazing stories from people that cut their cost significantly by doubling their deductible.

However, this isn’t a one-size-fits-all scheme. Percentages and benefits will always vary depending on the supplier, the circumstances and often simply the location. Research the options in your state. This may help you to weigh up those pros and cons a little further.

Reliable Companies That Will Actually Honour The Agreement

Finally, there is the reputation of the company themselves. Some providers are better than others at communicating with customers and actually offering the best deal. How easy will it be to change the deductible on your plan? Will the provider honour that and immediately change your payment plan? Will this all be reflected when an accident happens?

There are two nightmare scenarios here. You could increase your deductible, find it doesn’t affect the costs as promises and then pay out more after an accident. Or, you could reduce the deductible and find that this isn’t reflected in the amount paid by the company for repairs. Check user reviews for providers to see if yours has a poor reputation in this area.

It Is Important To Be Smart and Realistic About Your Car Insurance Deductibles.

It can be tempting to try and play the system and save every penny you can on your premiums. There are some cases where a high deductible with the right company can slash your monthly payment. But, there is a risk of going too high. You need to be able to pay out that deductible if you ever have an accident.

Aim too high with your plan and you could end up a lot worse off when you need to make that claim. Go in too low and your monthly costs may be too much too handle. Find a solid middle ground that is affordable and manageable. Increase your car insurance deductibles a little to ease the burden of those insurance costs but don’t put yourself in further danger.

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