Car Insurance Deductible Pros & Cons

insuranceThe Pros and Cons of Car Insurance Deductibles

Most types of comprehensive and collision car insurance give you the option of how high your insurance deductible will be. This can vary from zero deductible to very high into the thousands of dollars. In the event of a auto claim, the deductible must be paid before the insurance kicks in and makes a payment on your behalf. Having a lower deductible means that you will have less out-of-pocket costs.

Pros

When you have lower insurance deductibles it means that if something happens and you need to file a claim, you will have less out-of-pocket costs than if you had a high deductible insurance. This can be a great benefit especially if one is in a tight financial situation at the time a claim is filed.

Cons

In order to pay for the lower out-of-pocket cost, the insurer will ask that you pay a higher monthly premium to make up for their potential loss and risk. In other words, the insurance company will have to pay more of the the claim costs than if you had a higher insurance deductible.

All pros and cons are predicated on risk and reward. Choosing a lower insurance deductible also needs to be based on the risk and potential reward for doing so.


Risks and Rewards

Insurance companies model their business on a "risk-sharing pool". Not everyone is going to have an accident, and the insurance company's business model is based on that. The premiums you pay go into the risk-sharing pool, which is usually invested so that it will grow and further reduce the insurance company's risk. The pool is also used to cover accident claims, and the rest is used to cove business operating expenses such as infrastructure and salaries.

You are sharing risks with all other insured drivers. This allows you to avoid having your entire financial future ruined by one car accident. So, there are rewards and risks for each party. You’re taking a risk to trust the car insurance company to pay for any liability that you have in an accident, and they’re taking a risk that you will have an accident and they’ll need to pay. Both parties get some form of reward, you have the peace if mind that you'll get coverage if something does happen, and the auto insurance company is rewarded by earning money on your premiums.

Auto Insurance Tips

There are some tips that you can use to move into higher deductibles and thus lower your monthly premiums, if you really cannot afford the higher premium now.

  • The easiest is to start a savings account. While paying the higher premium and having the lower deductible, open a separate savings account just to save the deductible amount for each type of insurance that you have. For example, if you have a $500 deductible collision insurance, you will need to save that amount in the savings account. Once you save two years of deductibles, you can elect to switch to the higher deductible and hence lowering your premium.
  • Re-evaluate your car insurance needs yearly. Take the time each year to talk to your insurance agent about your needs, concerns, and questions. Reviewing and possibly updating your insurance policy once a year is an important part of keeping your payments reasonable and your coverage adequate for your needs.
  • Weighing the pros and cons of lower insurance deductibles is something almost everyone has to do when choosing auto insurance products. Understand what deductibles mean and its impact on your premiums, and be honest with yourself about your ability to pay the deductible and the premium. Your budget matters a great deal so that you can work it all out and not get caught in a situation where you cannot .

Related Posts

  • 66
    For People Who Feel Their Insurance Company is Screwing Them Over In this video you will learn: Insurance companies are infamous for offering a low cash payout - and what you can do about it. The biggest car claim negotiating mistake most people make - and how you can avoid…
    Tags: insurance, car, accident, will, auto, companies
  • 51
    How to Get the Most Cash For Your Totaled Car PART 1 of 3 If this is your first (or not) total loss vehicle claim, this article is for you. Here's the thing... The auto insurance companies don't want to pay your claim! There,I said it. That is why they…
    Tags: insurance, car, will, accident, auto
  • 44
    The most common response I see quoted online for the question, "what makes a car totaled", is when the cost to repair the damage equals 75% or more of the actual cash value of the car. This is very misleading because this percentage is different in some states. While some…
    Tags: car, insurance, totaled, auto, will, companies, higher, lower

Tags: , , , , , ,

Facebook Comments:

Leave A Reply (5 comments so far)


  1. Bill Nye
    9 months ago

    Shared! Shared! This is AWESOME stuff man! Thank you!


  2. fernando o.
    8 months ago

    farmers insurance trying to low ball me on my total loss.


Don’t Accept The Insurance Company’s Low Ball Offer!

250x250-cvsl-ad

Need Legal Help – Injury?

Uncover Any Vehicle’s Accident History

Disclaimer: "All brand names and product names used on this website are trade names, service marks, trademarks, or registered trademarks of their respective owners."

Affiliate Disclosure: I am grateful to be able to provide great content free of charge. As part of my content, I do make recommendations to products and services. If you click on one of those links and purchase, I may earn a referral commission in most cases. Your support in purchasing through these links enables me to keep my website operating costs to a minimum . Thank you, in advance for your support!

s2Member®
%d bloggers like this: