Choosing Your Auto Policy Deductible
One of the features of having a car insurance policy is physical damage coverage. If you’ve elected this coverage, choosing your auto policy deductible is a necessary step.
Some confuse liability insurance with physical damage insurance. Liability is coverage for bodily injury and property damage you cause to others. For example, if you hit a pedestrian or you drive off the road and hit a fence, that’s liability. Collision and comprehensive, two physical damage coverages, are for damage to your vehicle.
Collision insurance covers body damage for your car when you are in an accident. Comprehensive, also known as “other than collision,” addresses different risks, such as glass breakage, hail damage, theft, impact with an animal, and vandalism.
Auto Policy Deductible Options
Most of the time, people select their collision and comprehensive deductibles to be the same. There’s no reason they have to be, but it makes them a lot easier to remember. Of course, the lower your deductible, the higher the premium, because your insurance company will take more of a hit if there’s a loss.
Yet, the cost differences between the deductible options aren’t as big as you think. If a client were to increase their $500 deductibles to $1,000 thinking it would save them money, they might want to think again. Depending on the going rates, I’ve seen increasing a deductible not even save clients $50. That tactic is designed to shave off a little premium, not a lot.
The lowest deductible your author has personally seen is $300. More commonly, $500 and $1,000 options are available, with $2,000 being a less-seen possibility. Some insurance carriers may not write $300 physical damage deductibles. If the insured vehicle is high-end, they also may require a higher deductible of $1,000 or up.
If your vehicle is financed, the finance company will require you to have both comprehensive and collision. In many cases, they have auto policy deductible requirements; if your comp and collision deductibles are greater than $1,000, the lender may require you to decrease them.
Other than that, setting your deductible is a matter of choice. If you pick a $1,000 collision deductible, chances are your minor fender-benders aren’t going to be covered. Likewise, if you have a $1,000 comprehensive deductible, $1,000 in hail damage means it’s all coming out of your pocket. A $500 deductible at least puts some of these claims in play. Obviously, if you carry $2,000 deductibles, this coverage will only be meaningful for incidents on a larger scale. The rest would be on you.
Collision Coverage: If Your Car Is Old, Do You Need It?
If you’re driving a car a dozen years old or more, assuming that you do not have a lien on it, you may want to review your options. For example, if you have a $1,000 deductible and a car worth $1,500, it might not be worth it to you to pay for this coverage. After all, in the event your car is totaled in an at-fault accident, you’re only getting $500. On top of that, you might have paid $100-200 for the coverage, making for a minimal return on investment.
The older the car is and the less it’s worth, the more pointless collision insurance is. If your vehicle is worth at least a few thousand, however, you should absolutely carry the coverage. Again, if the car is financed, your lender will require it, so don’t drop collision thinking you can save some money. The last thing you want to do is piss off the finance company.
No matter what, you should carry comprehensive coverage, especially if you’re in a full glass coverage state. For example, in Massachusetts, state law mandates a zero deductible for glass if you carry comprehensive coverage. Other states may have this, or may give an option to pay for full glass coverage. That alone is worth having.