10/2/2012 7:43 PM ET|
Do higher deductibles save money?
Hiking car insurance deductibles for collision and comprehensive coverage could save you hundreds, but it comes with financial risks.
If you have enough cash in the bank to cover unexpected expense, hiking the deductible on your auto insurance coverage could save you hundreds of dollars a year.
But if you don't, you may be taking a big risk for comparatively little return.
CarInsurance.com compared rates on the same driver for three cars at deductibles ranging from $250 to $2,500.
If the sample driver -- a 35-year-old man with a clean record in Houston -- bought the cheapest policy shown below, he could save about 50% on his annual comprehensive and collision premiums by raising his deductible from $250 to $2,500.
The figures below don't include state-required liability coverages, which don't have a deductible.
|2008 Honda Accord EX|
|2012 Ford Explorer|
The costs of comprehensive and collision coverage are determined by the value of your car and the likelihood that the insurance company will have to pay out that amount. You can save money on the cost of that coverage in three ways:
- Drop the coverage altogether if you own your car outright.
- Shop around with different carriers. Rates can differ by hundreds of dollars.
- Raise the deductible.
A deductible is the amount you have to pay toward a repair. The higher the deductible you choose, the less risk of a payout for the insurance company -- and the smaller the premiums you pay.
Depending on the car, that Houston driver saves from $176 to $284 a year going from a $250 deductible to $2,500. If you have an extra $2,500 tucked away, that's a pretty good return for your risk.
But if you don't, the loss of your car as you try to find the needed cash could be devastating.
Who should raise a deductible?
Most people spend much less on comprehensive and collision coverage -- the insurance that repairs your own car -- than on liability, the insurance that covers the people you hit. Increasing deductibles only a little -- say, from $500 to $1,000 -- might not be a savings slam-dunk.
Cristofer Pereyra, an agent for Farmers Insurance in Phoenix, tells his clients who are good drivers that they're better off raising their deductible and putting the savings aside every month in case they have an accident. "The longer you have been without an accident, the longer you will be in the future," Pereyra says.
"Nobody likes to pay the deductible, but typically people choose a deductible that they can handle," he says.
Many people with high deductibles of $1,000 or more often own their car outright, have a lot of money in the bank and don't mind paying for minor damages or living with unrepaired dents on their bumper, says Penny Gusner, a consumer analyst for CarInsurance.com.
Who should not raise a deductible?
Raising deductibles is one of the best ways to save on car insurance, says Mike Sena, a financial adviser in Georgia. But putting the difference into a savings account is critical.
"You never know when you're going to need insurance," Sena says.
Those who gamble on a deductible they can't afford face the possibility of not getting their car back from the body shop until they pay it, Gusner says.
Typically, insurers pay the body shop directly for repairs, leaving the driver to pay the deductible to the body shop, she says. Storage fees may be added, too. The shop can use what's known as a mechanic's lien to hold the car.
To lower the bill, the body shop may agree to use cheaper parts or leave some repairs undone. That could hurt at resale time.
More from CarInsurance.com:
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ok, so what if you do have an accident? then your going to be paying out more, a lot more. the way I see it, its easier to pay an extra $180 over 6 mths, than to have to come up with a $500 or $1000 deductible. You wont miss that extra $30 a month and it wont hurt.. not as bad as "uh oh, I have to fork over $500 or $1000 for deductible. ouch.
Example: I just got insurance with a $100 deductible. I pay an extra $18 a month vs a $500 deductible. Lets say 6 mths down the road I have a claim. 6 mths x $18 = $108 plus the $100 deductible, I paid a total of $208. Half of which has already been paid. so all I need to come up with is my $100 deductible. Had I chosen the $500 deductible I would have to pay $500 - $108 I supposively saved = a total of $392. But that $108 never saved and even if it is.. you still end up forking over $500. so which would you rather have to come up with $100 or $500? you can crunch numbers all day but in the end, you gotta fork over some cash. If you you never need to make a claim.. well, your just throwing your money down a rat hole anyway. So you might as well make it easier on yourself when it comes down to it.
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