Many times we purchase auto insurance without knowing exactly what it is we are buying. One area where money is sometimes wasted is in the excess premium you are paying for. You could be overpaying for the deductible you have chosen for your auto insurance.
Your deductible is the portion of the claim you agree to pay for yourself. Your auto insurance company usually pays the balance of the claim after your deductible. Since the cost of your insurance rises with the lowering of your deductible, it is possible to assess the actual cost of your insurance deductible. This is true of all insurance. For the purpose of this article we will deal with auto insurance deductibles.
One of the many factors to consider when purchasing auto insurance is which deductible to choose. Deductibles range from as low as $250 to over $1000. The annual cost of your insurance or your premium also varies with the amount of deductible you choose. When choosing a deductible, it is important to determine the true cost of that deductible in real dollars. By true cost, I mean how much of your premium is affected by the deductible.
Let’s look at a quick summary of savings by changing your auto insurance deductible. Studies have shown that you could lower your premiums by 15% to as much as 30% by moving your deductible from $250 to $500. A savings of around 40% could result by again moving your deductible from $500 to $1000. Of course, the amount of savings incurred needs to be assessed on a policy by policy and company by company basis. Nonetheless, this leads to the question of whether or not it makes financial sense to raise your deductible and save money. Remember, when you raise your deductible on your auto insurance, you are making a commitment to pay more out of pocket expenses when necessary to satisfy your portion of a claim.
It is simple to evaluate your potential cost savings, all you need to do is to get a quote from an auto insurance company and establish the coverage you want with a deductible of $250. Next, ask the agent or broker to provide you with quotes for the same coverage with a $500 deductible and for a $1000 deductible. If the difference in premiums is greater than the difference in the deductibles then it is wiser to take the higher deductible and pay a smaller premium and keep your money in your pocket. For example: let’s say that your annual premium for an auto insurance policy with a $250 deductible is $1600, but for the same policy with a $500 deductible the annual premium is $1250. Since the difference between the premiums is higher than the difference between the deductibles ($350 vs. $250) it might make sense for you to go with the lower premium and higher deductible. Why let the insurance company profit from you any more than is necessary. With the steadily rising already high cost of insurance today coupled with the rising gasoline costs, saving money on your auto insurance is a smart move.
Here’s the best part of this plan. If you don’t have a claim during the policy period, you keep the money you would have paid in premiums for the lower deductible and you can use the money anyway you want — invest it, save it or have fun with it!
Bear in mind that if you elect to have a higher auto insurance deductible, you will have to pay more money out of your pocket in the event of a claim. You will have to have the money or have a way to raise the money.
I personally have used this idea to save money on my auto insurance and you can too. When you know the true cost of your deductible, then you can make an intelligent choice on how you want to manage your auto insurance costs. To find a top auto insurance company who can help you analyze and manage your deductible to premium difference click this link save on auto insurance rates.
Karen M. is an accomplished CPA from PWC (Price Waterhouse Coopers) a worldwide Big 4 CPA firm and is the author of http://www.MsFiscallyFit.com, a resource to help women improve their lives and be more successful through the proper management of their finances, careers and their businesses.
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