Now that getting auto insurance quotes is basically automated, searching for better rates, better coverage, and comparing insurance quotes are budgeting activities a lot of people do on a regular basis. But with all the concern over proper coverage and saving money, taking all the things family and friends told you about deductibles into consideration, and figuring out what’s best financially for the short-term and long-term, how do you know what to select? How do you know what’s really going to save you money over time?
Sorting through all the advice you hear about auto insurance can be more complicated than understanding insurance lingo. Friends and family tell you one thing, your agent tells you another, and everything you read online says something else. This is what you have to remember though—everyone has different insurance needs, and no two insurance policies will EVER be the same. Think of all the things insurers consider — type of vehicle, driving history, where one lives, credit history, and past insurance history — and you’ll see why rates can drastically differ from one policyholder to another. Add in the variables of different insurers and the different product options, and you have a complex puzzle with many possible solutions. Conflicting information abounds, but let’s break it down and simplify it as much as possible.
You know you need high liability coverage, there shouldn’t be any confusion there. Then there’s the number one piece of advice everyone has about auto insurance– raise deductibles for cheaper rates. But is this advice that remains consistent?
There’s one question that will help you figure this out easier–what category do you fall into when considering where you are in life as relating to car insurance? Once you figure this out, you’ll better know where to start when searching for competitive insurance rates.
1. Stable and established–start with low deductibles ($0-$250):
• If you’ve had continuous car insurance for at least three years without any gaps or lapses in coverage, you’d be considered fairly well established and stable.
• If you’re financially stable, it will usually be cheaper to pay slightly higher premiums than running the risk of paying large deductibles out of pocket possibly more than once a year, especially for comprehensive coverage.
• If you’re over age 21 and have had continuous car insurance since at least age 19.
• If you’ve had no more than one minor moving violation in the past three years and no accidents or claims.
• If you have several types of property you can insure with one company–i.e., house, motorcycle, multiple vehicles, RV, and boat.
• If you’ve consistently carried higher liability limits ($50,000 or higher per person, $100,000 per accident) for at least one year.
2. Somewhat stable with a few “dings”–start with mid-range deductibles ($100-$500) if:
• You’ve had car insurance for several years, perhaps a few gaps, but no gaps in the last six months.
• You have no more than one accident or claim and no more than one violation.
• You’re over the age of 21 and have had your driver’s license for at least three years.
• You don’t own your home, but carry liability and property coverage on a renters insurance policy.
• You have one vehicle or more than one vehicle, it won’t matter, but the multi-vehicle discount from insuring multiple vehicles will be enough to make up the premium difference of paying a little more for a lower deductible.
3. Little to no insurance history, more than “a few dings,” and/or new drivers–start with higher deductibles ($500-$1,000+) if:
• You’ve been a driver for less than three years and you’re under age 25.
• You’ve had more than one claim or accident and have more than one violation, or a combination of three or more violations, accidents, or claims.
• You have a major violation like a DUI, driving without a license, driving without insurance, using a vehicle for a crime, reckless driving, etc.
• You have less than six months of continuous insurance coverage prior to searching for insurance.
• You have several drivers on your policy, including teenagers. Remember, you can usually select different deductibles for each vehicle and sometimes you’ll be required to assign drivers to particular vehicles, which is when deductible selection is really important and can be especially beneficial.
Remember, these are just guidelines on where to start. Always check several options and combinations when getting insurance quotes for you to strike a happy medium between price and coverage. Saving money on auto insurance doesn’t make sense if you can’t pay the out-of-pocket deductible if you have a claim. Sometimes, certain factors balance out premiums enough that carrying lower deductibles won’t make significant changes in premiums and benefit you more by not having to pay more out of pocket when there’s a claim.
Remember that although options like “diminishing deductibles” sound alluring, you should never choose a deductible based on having that option. Sure, it will be great if your deductible is reduced to $100 after four years of no accidents, but you can’t guarantee you won’t have an accident in the next four years. Select deductibles based on what you can pay independent of such a perk.
Once you determine which category most accurately describes your situation, begin playing with deductible options there. Before settling on a deductible strategy though, start building your policy with the highest liability protection you can afford—ideally no lower than $50,000. If you have to, work down from the highest limits if the highest is greatly out of your price range. It doesn’t make sense to save $5 a month by increasing your deductible by $250, nor does it make sense to save $5 by choosing $50,000 less in liability protection.
Amidst all the auto insurance options available—diminishing deductibles, new car replacement, accident forgiveness, roadside assistance, medical payments, and more—your first priority should be what will protect you in worst-case scenarios. That includes protecting other drivers if you cause an accident and picking deductibles you can presently afford on any given day.