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Raise DeductibleWhen looking at your current car insurance rates, one of the first steps you should take is a hard look at your car insurance deductible. The "deductible" is the portion you are required to pay out of your own pocket before the car insurance will kick in. For example, if you have a $500 collision deductible on your car insurance policy and you back into a pole that causes $350 worth of damage, you will have to pay the entire amount since $350 is less than your $500 deductible. on the other hand, if you get into an accident which does $1000 worth of damage to the vehicle, you would pay the $500 deductible and the car insurance company would pay the additional $500.
The above example would lead most people to want a $0 deductible. The problem with that, however, is that the lower your car insurance deductible, the more your car insurance payments will be. While having a low deductible may at first seem like the best plan, you need to consider what the low deductible will actually cost you. For example, say that increasing your car insurance deductible from $250 to $500 would save you $100 a year on your insurance payments. This would mean that keeping the $250 deductible is the same as paying $100 for $250 ($500 - $250 = $250) in coverage per year. When you look at it from this perspective, low car insurance deductibles make little financial sense.
While a low deductible will cost you with higher car insurance payments, a high deductible may cause financial hardship if you do get into an accident where the entire car needs to be replaced. Your best strategy, therefore, is to raise your car insurance deductible as high as possible knowing that if you do have an accident, you'll be able to cover the deductible without putting yourself into any type of financial hardship.
In some cases, it may even make sense to drop the collision and comprehensive car insurance coverage completely. This is especially true if you own an older vehicle that has a bluebook value that is worth less than several thousand dollars. The reason it may make more financial sense to drop the coverage all together is that when a car has little resale value, any insurance claim you are likely to make will not substantially exceed the combination of your car insurance costs and deductible amounts.
There is no exact science to what is the best deductible amount and a lot will be determined by what you would be able to afford to pay if you did have a major accident. taking the time to go through the numbers and see what deductible value makes the most sense for you, however, will mean that you are getting the most from the money that you are paying toward car insurance.
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