Insurance Deductibles: How Much Is Just Enough?

Posted on Nov 2nd 2009, 07:45 am, under Auto Insurance 101

Auto insurance is required in every state, and the government sets minimum liability insurance requirements that drivers must follow. However, it does NOT tell you what to do about deductibles for physical damage. 

Therefore, you might be wondering: What is the optimal deductible amount ? You want something that won't break the bank while yielding a reasonable premium at the same time. Fortunately, we've got some pointers to guide you in selecting an auto insurance deductible:

1. First of all, check your budget. You must realize that insurance deductibles are not one-time payments, but fees that must be paid each and every time you get into an accident. If you are unlucky enough to get into multiple accidents, you'll have to fork out the deductible payment each time you make an insurance claim. So you have to ask yourself: What deductible amount can my budget support, and can I afford it in case I need to make multiple insurance claims?

2. Consider your car. What is its year and model? Naturally, the appropriate deductible for an eight year old sedan will be different from that of a brand-new sports car. Before you make your decision, get more information by checking online sources for the average repair cost of an identical vehicle. A good place to start looking is in Internet forums for car enthusiasts and specialists, such as 2CarPros.com or automotiveforums.com. 

3. Do you have an auto financing arrangement? If you leased your car or took out a loan to pay for it, you should review the fine print in your financing contract. Sometimes finance firms put a maximum deductible amount that you may not exceed if you wish to maintain compliance with your financing arrangement.

4. Balance it out. If you take out a low deductible, you pay more for your insurance premium, and vice versa. There are pros and cons to each path - on the one hand, you may save more on the premium if you take out a high deductible. However, you might find yourself unable to pay this amount if you do get into an accident.

You must ask yourself: How much are your out-of-pocket expenses compared to your potential premium savings? You need to weigh these two factors and come up with a good deductible-premium ratio that works for you. Many car owners find that their "sweet spot" for deductibles is $500. However, this may not be right for everyone, so make your own calculations and figure out exactly how much you'll be saving. Alternatively, you can always ask your insurance agent to give you other deductible quotes for comparison.