When deciding on your auto insurance, there are several factors to consider. You have your monthly premium that you have to pay, and you also have your deductible amount that you will pay in the event of an accident. Most people understand the general rule that the higher the deductible you have, the lower your premium will be. For many people, that seems like a great way to save money each month. However, is the decision that easy? Should everyone just select the highest possible deductible in order to save money?
In short, selecting the highest possible deductible amount is not the best option for many people. Keep in mind that whatever amount you select is the amount that you will be required to pay if you get in an accident. While no one thinks they will ever find themself in that situation, the reality is that accidents do happen. If your deductible is $1500, you need to make sure that you have that money to pay in full before the insurance company will cover the rest. Being realistic, you should select an amount that you could pay without putting too much of a strain on your budget or savings account.
Another thing to keep in mind is the amount that your premium will go down as a result of your deductible going up. For some people, the change may be significant and the risk of having the higher deductible may be worth it. However, depending on your auto insurance company, the age of your car, your driving record, and other related factors, you may end up only saving 30 or 40 dollars annually. In this situation, having the higher deductible doesn’t save you much money, and could cost you way more in the long run.
It is important to keep in mind your driving situation when considering your deductible amount. If you drive in an area without much traffic and have a perfect driving record, it would make sense to consider raising your deductible. On the other hand, if you have a history of accidents or live in a big city with a lot of heavy traffic, your risk for getting in an accident is much higher. Therefore, having that higher deductible will most likely only cost you more money than you are saving on your premium.
Selecting your amount of insurance coverage and your deductible amount is no easy decision. When making your choice, consider both your monthly budget and any savings you have that could serve as an “emergency fund.” While it may be tempting to try and save as much as possible month to month, you could end up in a way worse situation where you have to take out a high interest loan in order to pay for damages to your car. Be sure to take the time to consider your situation, weigh the pros and cons of a high deductible, and get quotes from different companies to see which is the best fit for you.