High Deductible vs. Low Deductible Auto Insurance
When shopping for auto insurance, is it better to have a high or low deductible. Financial experts will tell you that a higher deductible is best since this will lead to lower monthly payments. However, this is only a good option if you can afford to pay the entire amount of the deductible.
When you're weighing the amount of the deductible, there are a few factors to consider: your finances, driving record, and the cost of the policy. This overview may help you decide.
Choosing a Low Deductible
If you're on a tight budget and simply can't afford unexpected expenses, then a low insurance deductible is going to give you more peace of mind. Even a minor problem with your vehicle can lead to a $500 repair that may not be in your budget. When you want peace of mind, then you're probably better off making the safe choice of having a low deductible. This means that you won't have to pay much more than your regular premium if your car needs some help after an accident.
However, this does mean that you're going to pay more for your monthly premiums. If you're a safe driver and live in an area where accidents are not commonplace, then this may be an unnecessary expense. You will want to choose a lower deductible if you're leasing or financing your car. Most of these agreements have it mandated that you need a low deductible so look into the requirements if this is the case. If you're driving a car that's at the end of its usable life and you own it, a low deductible really doesn't make sense though.
Choosing a High Deductible
The primary reason why people choose a high deductible is that it will lower their monthly premiums for the auto insurance policy. Sometime the difference can be dramatic. For example, if you raise your deductible from $200 to $500, then your premium may decrease by up to 30%. This is significant for most people. Doubling it to a thousand dollars may reduce it even further.
While these numbers sound appealing, you'll have to look into your own auto insurance policy to determine what you'll actually save with a high deductible. After all, everyone's policy is going to be slightly different based on their unique situation. Additionally, the savings you can expect will only apply to your collision and comprehensive insurance. You can talk to your agent or shop online with different deductibles to determine how much your premium will be affected.
Then take a look at your own personal finances and determine how long it will take for your savings to equal the cost of the deductible. If you save $50 a year on premiums by raising your deductible by $250, it will take five years to equal what you've spent.
Keep in mind that there isn't any one correct option which is why most people end up with a moderate deductible in the end. Try a few different options and see how much you're actually saving and how much you can afford to pay in the case of an accident.
Tips for Lowering My Insurance Premiums
If you're tired of paying too much for auto insurance, then you should be aware that you have options. Of course, the best way to keep your premiums low is to have a good driving record. That's not your only option though. Prices for auto insurance are not standardized so you may be able to use a few different options to keep your costs manageable. These are just a few of the ways to keep costs manageable.
Shop Around
Not every insurance charges the same. You may want to shop rates from a few different companies. Usually having at least three different price quotes is a good option. You should only choose reputable insurers and ones that offer adequate coverage. It's also a good idea to not shop by price alone. Ask friends and relatives if they have any recommendations. They may know companies that have good coverage for a reasonable option. Contact your state insurance department for more details as well.
Consider a Higher Deductible
The deductible is what you're going to pay before your insurance kicks in. By choosing a policy with a higher deductible, you may be able to lower your costs significantly. For example, if you can change you deductible from $200 to $500, then you may be able to reduce your comprehensive cost by up to 15% or even higher. Remember that although this is a way to save money, you should only choose a deductible that you could plan to cover if you did have an accident.
Bundle Insurance Coverage
Most people have at least two types of insurance and insurers are generally willing to give you a better deal if you buy at least two types of insurance from them. You may also get a discount if you have more than one vehicle policy with the same company. They may even be willing to lower your rates if you're a valued long-term customer. It still makes sense to shop around so even if you're going to have multiple policies, check your rates.
Look at Low Mileage Discounts
If you're not driving frequently or only drive a short distance, then you may be eligible for discounts based on your current number of miles driven per year. As you drive more, your overall risk of having a claim goes up. Low mileage discounts may also be available for people who carpool to work so ask about this if relevant.
Seek Out Additional Discounts
Each insurance company may also offer other discounts simply based on factors specific to their company. Some may offer a safe-driving or accident-free discount while others may have one as your car ages. When you comparison shop, ask about additional discounts such as having AAA or any other factors.
Regardless of which policy and auto insurance company you choose, you should be aware that there are options when it comes to how much you pay. Certainly rates can be higher for some people or in some areas but you should be able to lower your costs with a few considerations.
What factors affect my auto insurance rates?
Auto insurance is an important part of a motorist's life and is a requirement in 48 of 50 states in the United States. The financial safety net provided by auto insurance is an effective guard against accidents, theft, and vandalism, allowing an individual to pay only a fraction of the cost of these unpleasant events. Many different factors can affect the rates paid by a motorist, and being aware of these factors can help provide insight on how to reduce them.
Age
One of the most significant factors in auto insurance rates is age, with younger drivers usually paying far higher premiums than older drivers. The average 6-month premium for a 16-year old motorist from major auto insurance providers ranges from $2,040 with State Farm to $5,268 with Progressive. In comparison, the average 50-year old motorist pays a premium ranging from $461 with USAA to $930 with All-State. Once a driver approaches 70 years of age rates usually begin to increase again although rarely getting near the rates of teenagers. It is important to note that 3 states, California, Hawaii, and Massachusetts, prohibit insurers within the state to base rates on age.
Driving History
Driving history also plays a major role in formulating an auto insurance premium, with violations such as speeding tickets or DUI's, as well as at-fault accidents significantly increasing rates. Even a minor traffic violation can increase rates by between 20% and 40%, so it is important to always drive as safely and responsibly as possible. Major traffic violations such as DUI's and DWI's can drastically increase premiums, increasing them by 100% or more depending on the specifics of the situation.
Mileage
As a general rule, the less you drive the less you pay. In most states, this is a relatively minor factor in determining a premium, with the difference between a motorist who travels less than 7,500 miles per year and one who travels over 15,000 miles per year being about $92. However, in California, drivers who drive less are rewarded much more, with the difference between the two previous mileage groups being $557.
Insurance Coverage History
Auto insurance companies look very favorably on drivers who maintain a continuous level of coverage, without any previous gaps. A study of 7 major auto insurance providers showed that insurance rates dropped considerably for motorists who maintained 5 continuous years of coverage after previously not being covered, with a savings on average of $182 per year. As a result, it is important for newer drivers who were previously insured under their parents' policy to always let their new insurance company know about their previous coverage to avoid unnecessary rate increases.
Vehicle Type and Vehicle Factors
Newer, more expensive cars cost more money to insure than older cars, and sports cars almost always cost more to insure than regular vehicles. Ironically, cars that implement safety features such as collision-warning systems or electronic stability control systems do not necessarily receive lower rates. Many insurance companies view these features as adding to the value of the car, and thus increasing the expense to ensure, as well as considering them a potentially significant expense should they become damaged.
