When it comes to auto insurance, you may think it’s as simple as securing a policy. However, a lot more goes into making sure you have the best policy for your particular needs. Not only is the amount of coverage you get important, but your deductible is also a factor to consider. You may wonder how to choose the right auto insurance deductible. We can help you determine how to choose a deductible for car insurance. Read on for more details and information about how to choose the right auto insurance out-of-pocket amount.
Demystifying Car Insurance Deductibles
Before diving into the nitty gritty of out-of-pocket expenses and answering the question, “What should my deductible be for car insurance?”, it’s important to assess your needs. An out-of-pocket expense only comes into play if you get into an accident. So, it’s going to be a factor in that scenario.
Evaluating Your Auto Insurance Needs
When evaluating your auto policy needs, it’s helpful to determine if you are more or less likely to get into an accident – for example, if you have to drive in Atlanta rush hour every day. You can begin assessing your insurance needs by answering the following questions:
- How much do you drive per week? The more you drive, the more likely you will be to get into an accident.
- What is your geographic location like? In other words, do you live in a congested, suburban area or in a country-like setting?
- When you do drive, are you commuting to high-traffic areas or driving on mostly low-traffic routes?
- Do you own an expensive car or one that uses special parts (i.e., electric vehicles, newer cars, certain brands and models)?
Answering these questions will allow you to determine your level of risk for an accident. For example, if you drive an excessive amount every day and you drive in highly congested areas, you have a greater chance of getting into an accident. This can help you make a better decision about how much policy coverage you need and how much to choose for your auto insurance deductible.
High vs. Low Deductible Strategies
When deciding what type of policy you want to secure, it’s important to determine whether you should get a higher or lower out-of-pocket expense. But first, you might wonder, “What is a deductible?” It is the amount you’ll have to pay out of pocket before the insurance policy kicks in and your provider pays the remaining expenses.
There are different reasons for selecting one amount over the other.
The Pros and Cons of a High Deductible
“What should my deductible be for car insurance?”, you may be thinking. Deductibles can range from about $100 to $2,500. How do you know which amount is right for you?
A higher out-of-pocket expense means if you get into an at-fault accident, you will have to pay the higher amount. So, you will need to consider whether you will have a larger amount of money on hand in the event of an accident. You should also think about whether you have a higher likelihood of getting into an accident or not.
On the upside of things, raising your deductible will lower your premium amount. So, if you need more money each month, and you feel comfortable forking out a higher amount of money if an accident occurs, then this option will work well for you.
When a Low Deductible Makes Sense
Some people aren’t comfortable shelling out a large sum of money in the event of an accident. They would rather pay a bit more monthly and not worry about coming up with the cash later if an accident happens. A lower deductible will result in assessing your budget to see if you’re comfortable paying that amount monthly. If so, you won’t need to come up with a larger sum if you get into an at-fault accident.
You may also decide that a low amount makes more sense to you because there’s a higher risk of accident — maybe you live in a high-accident area or have young drivers in the home.
Financial Considerations for Deductible Choices
It makes sense to evaluate not just how much cash you have on hand but also what your monthly budget looks like. You may or may not get into an accident but must always plan as if you will. That way, if you choose the higher auto insurance deductible, you are covered.
Keep in mind that there are different types of car insurance. For example, if you have a full coverage policy, your premiums will reflect that.
Understanding the Trade-Off Between Premiums and Deductibles
Another way to assess the trade-off between premiums and out-of-pocket expenses is to see what the monetary difference is between the premium for a higher and lower deductible. Then, assess how much that adds up to in one year. You can compare that with the overall yearly out-of-pocket costs. This would be the amount you’d have to pay in the event of an accident.
Tips on Choosing the Right Deductible Amount
Deductible amounts will cause your premium to change. You can work with an insurance advisor to find out the exact savings you’ll receive as you adjust it higher. For example, if you change the amount from $500 to $1,000, you may save as much as 28% on your six-month premium. The savings may be different if you have a comprehensive auto policy.
Adjusting Your Deductible Over Time
When you choose your out-of-pocket expense, remember that you’re not locked into that amount. You can adjust it whenever you want. Your financial situation may change from one month to the next or one year to another. It’s fine to change your out-of-pocket expense to match your budgetary concerns. Talk to an advisor about making an adjustment if needed.