Auto Insurance Deductibles

Auto Insurance Deductibles: Save Money or Lower Risk – As Usual, It’s Up to You

Now this could be a real mind-boggler, but only if you let it. Rather than consult your PhD friend at MIT or schedule an appointment with the Oracle of Delphi, you can tackle this one on your own.

First you need to understand what a deductible is and how it affects you and yours.

A deductible is the amount of money you agree to pay toward damages in the event you smash into someone or get smashed into. Deductibles also apply to damage caused to your car from anything not caused by an accident, like some juvenile delinquent dropping a sack of tomatoes on you from an overpass, getting your car egged by that same kid, or, when that future menace to society gets a little older and actually steals your car.

If you’re smart or cautious or clairvoyant enough to have taken out collision and comprehensive insurance, the insurance will pay for all the damages EXCEPT for what you’ve agreed to pay. That exception is the deductible. Throttling that kid is not an insurance option, and your policy won’t help much if you’re in jail.

For example, if you have a $100 deductible, and the kid has caused $400 worth of damages with his sack of tomatoes, then you have to pay $100, and the insurance company will pay the remaining $300.

Now here’s the catch: The lower the deductible you agree to pay, the higher the premium. The inverse also applies: The higher the deductible, the lower the premium. Now, see, that’s not quantum physics, is it?

The part you need to think about is whether or not you need pay high deductibles/lower premiums or low deductibles/higher premiums. The higher you think your chances are of sustaining damage to your car, the lower your deductibles should be. The deductible payment is a gamble; the premium is not.

Here are some scenarios to help you decide:

Lower your deductible/raise your premium: Your car is fairly new and if something happens to it, you'll have a psychotic break with reality. You can't avoid that kid and his tomato assaults because it's the only route to where you work without driving 75 miles out of the way. You figure you're gonna get it sooner than later, so go ahead and lower your deductible if you're getting tomatoed with frequency.

Raise your deductible/lower your premium: The tomato terrorist has moved or been sent to the local detention center. Not only can you breathe easier, you can also raise your deductible and lower your premium since he's not due to get out until your planned move out of the neighborhood has taken place.

Raise your deductible/lower your premium: You’re a nice, stable woman, older than 25, married, and you live way out in the country far from tomato throwers or car thieves. You only venture out in your car twice a week to go shopping or visit friends/relatives, and you never ever drive over the speed limit, even in a dire emergency, like really needing to go to the bathroom.

Lower your deductible/raise your premium: You’re a 23-year-old speed-demon-kind of a guy with a red-hot Mitsubishi GT3000, and you drive 90 miles an hour 90 miles a day round trip to your high-paying, high-stress, high-tech job every day. You habitually leave your keys in the car and tell everyone around you, including the juvenile delinquent you hang out with that steals cars and has a thing about tomatoes.

So think about what your risks are, and if you still can’t make a decision, there’s always the Oracle. (Your PhD friend doesn’t have time for such silly questions.)