How to Save Money by Choosing the Best Auto Insurance Deductible

How to Save Money by Choosing the Best Auto Insurance Deductible

Posted on: 31Mar,2016

For many of us, our auto insurance premium is one of the more financially painful bills that we have to pay on a regular basis. The pain of paying this bill is attributed to the fact that we do not see the direct benefit of paying it until the time comes when something has gone wrong, like getting involved in an accident. One of the more common ways to lower the cost of your autoinsurance premium is by raising the amount of your deductible. This will lower your premium rate, but you will have to pay more before the insurance pays for any repairs you need resulting from an accident.

What is an Auto Insurance Deductible?

In the simplest of terms, your auto insurance deductible is the amount of money you have to pay out-of-pocket for repairing the damage to your vehicle that results from a vehicle accident before your insurer covers the rest of those costs. For example, if your deductible is the lowest amount – usually $250 – and you have $3,000 in damage repair costs, you have to pay that $250 first. Then your insurance company will pay the balance of $2,750 in repair costs. Since the insurance company will have to pay more for your repairs, you will have to pay a higher premium rate.

On the other hand, let’s assume you have taken the highest deductible amount of $1,000. So you will have to pay that amount towards that $3,000 repair cost before your insurer pays the remaining $2,000 balance. Since you have to pay more for those repairs, your insurance company will charge you a lower premium rate. In a sense, auto insurance deductibles are a double-edged sword. Either you pay more over the long run for your premium rates, or you pay more up front when your vehicle is damaged in an accident.

What does Your Deductible apply to?

The amount of the deductible you choose has a direct impact on how much your premium will cost you. Aside from that and the information above, the amount of the deductible you pay is applied to your collision and comprehensive coverage. Collision covers the cost of repairs if damage to vehicle results from an accident or another object. Comprehensive covers auto repair costs for damages resulting from an event other than a vehicular accident such as:

• accidents involving animals
• natural disasters such as floods, hurricanes, and tornados
• vandalism
• theft

Most California car insurance companies have pre-set levels of deductible amounts that you can select when setting up your policy. Depending on the company you enroll with, deductible levels is $250 at the low end up to $1,500 at the top end. Typically, these levels increase in increments of $250.

Choosing a Deductible amount that’s right for You

One of the first things to consider is that you want to choose a deductible amount that you will be comfortable with should you have to pay that before your auto repair work is completed. However, even if you can afford paying a higher deductible amount, you might still opt for a lower one. In a lot of cases, those individuals who have chosen a higher amount have found out that paying it after an auto accident is more painful than what they had anticipated it would be.

In other instances, you may see the threat of a larger out-of-pocket expense as a deterrent to filing claims in the future. It’s unfortunate but auto insurance companies will hold claim frequency against you in order to raise your premium rates. Basically, selecting a higher deductible amount might just save you from yourself. Making fewer claims over the long term could result in paying lower insurance premiums in the future.

While the dilemma of lowering or raising your deductible depends on a person’s tolerance for risk, it is much easier to do the math and calculate what your potential savings could be. However, just remember that this will vary from one California car insurance company to the next. Just remember that, for all intents and purposes, the amount of deductible that you choose is a matter of personal preference. But in the long run, you have to live with your decision.