In the quest to pay less for auto insurance, many people decide to increase their deductible. They’re right on one level. Increasing your deductible typically will lower the amount you pay for coverage. But it’s a move that is fraught with risk. It might not be the best strategy for cutting your bill.
To decide whether it is a tactic worth exploring, first you must understand how auto insurance rates are set. Here are some of the factors:
The types of coverage you want
Every state requires liability insurance, though minimum amounts of coverage differ widely by location. This protects you in case you cause an accident that injures someone else or damages property (including other vehicles). Many states require uninsured/underinsured motorist coverage as well. That protects you in case a motorist who does not have enough or any coverage causes an accident that affects you.
Collision and comprehensive coverages are always optional as far state requirements are concerned. However, lenders generally require both of these to protect their investment. Collision helps with repairs or replacement of your car if you cause an accident. Comprehensive provides assistance for incidents other than collision, including if your vehicle is stolen or vandalized.
The type of car you own
Obviously, if you have a new car, it’s going to cost more for your auto insurance than if you’re trying to squeeze the last few miles out of a bucket of bolts. And a sports car likely will cost more to cover than a sedan.
You
Here’s where it gets tricky. Your coverage depends in large part on you. Age matters: Younger drivers are going to pay more than experienced motorists. Gender plays a role, too, as men are considered higher risks than women.
Where and how much you drive also factor in to your premium. Rural drivers, in general, pay less than urban motorists. People who commute longer distances and drive more in general also are charged more.
Finally, your past will catch up with you. Your driving record figures heavily into the rate you’ll pay. If you’ve caused several accidents and triggered claims, you’ll pay more than someone who has been accident-free for years. Your credit record also is a major factor. Studies show that credit history reflects your responsibility as a driver. The better your record, the lower your rate is likely to be.
You might notice something about those factors: There isn’t, in many cases, much you can do to change them. You can buy a cheaper car, but your age, gender, location and driving and credit histories are what they are.
That’s where your deductible comes in: It’s something you can change. The deductible is the amount of a claim you’re responsible for paying. Setting it high will cut your premium, but it means you’ll have to come up with more money if a claim arises. That can be difficult for many people. The end result is you won’t have the coverage you’re counting on in case of a wreck or other incident.
There are better ways to reduce what you pay. One is to shop your coverage at least every year. While providers use many of the same factors to determine rates, they don’t value all the factors the same way. There can be considerable difference, particularly when you compare several providers to get their best prices.
The other way to reduce what you pay is by asking your provider about discounts. These price breaks vary greatly by state and carrier. However, some common discounts include the following:
- Having anti-theft devices installed on your vehicle
- Taking an accredited defensive driving course
- Insuring more than one vehicle with the same provider
- Buying auto and home insurance from the same carrier
You’re right to be concerned about your car insurance rate, and you’re correct in assuming that raising your deductible could lower your premium. However, it also could cause trouble for you if you’re in an accident and can’t come up with enough to cover it. Consider your options carefully, and see whether there could be a better way to pay less for the coverage you need.
Source: AutoInsurance
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