Determining the right deductible when purchasing auto insurance can be difficult. It’s tempting to reduce your rate by increasing the deductible to the maximum possible, but taking on more risk than you are able to assume can place your entire financial future at risk.
Ask yourself the following questions to determine the right level of coverage for your financial comfort zone:
1. Do You Have a Healthy Savings Account? Before opting for a high deductible, be sure to set aside enough savings to cover the full cost of the deductible should an accident occur. Many people find it helpful to start slow, gradually increase the deductible, and put the savings in the bank. Once sufficient funds have accumulated, then it’s safe to increase the deductible once again. The reduced premium often pays for itself within the first year.
2. Are There High-Risk Drivers in the Household? A healthy savings account can become quickly depleted if used frequently enough, so households with a high-risk driver may prefer a lower deductible in case of multiple accidents.
3. Do You Drive an Older Car? Remember, the purpose of auto insurance is to pay for repairs so you don’t have to, but people who drive older automobiles may not be as concerned about small dings or dents. In fact, some repairs may cost more than the entire depreciated value of the vehicle. It’s often more affordable to opt for higher deductibles and then use refurbished parts when obtaining repair quotes.