A special feature to save money on your collision coverage is called a deductible. People generally don’t like deductibles. They think, “Why am I paying the insurance company a premium if I have to pay a deductible before they pay me anything?” You must change the way you think about deductibles. A deductible is an opportunity to take responsibility for your financial setbacks. That’s because the higher your deductible, the lower your premium.
For example, if you were to increase your deductible from $500 to $1,000, you would see a significant reduction in your premium costs. Some companies allow you to increase your deductible to $2,500 or more. But “I can’t afford to pay $1,000 to fix my car!” you might say, “That’s why I have insurance.” It’s the wrong reason. In fact, you’ll be paying the insurance company well over $1,000 over time to protect you from what is a financial setback, not a catastrophe.
If you took the difference in premium you’d save by raising your deductible and put that money toward insurance, it wouldn’t be long before you’d have $1,000 set aside. With a $1,000 deductible, the most you could lose in a total loss is $1,000. This is a painful financial setback, yes, but not financially devastating.
Save $2,500 to insure your vehicle and a $2,500 deductible lowers your premiums even more dramatically. Keep saving until you have enough to match the actual cash value of your vehicle and can cancel your Collision Coverage in full. You have made sure. By the way, it’s never wise to owe the bank more than your car is worth. Insurance companies only pay for the value of a car, not the size of the loan.
Now let’s look at the other type of auto insurance included in your policy, Liability Coverage. This is the type that is designed to pay for expenses that result from physical injuries that occur to people who are injured due to your driving error.
If you have an accident that is your fault and someone is injured as a result, what kind of expenses could you incur? It depends on the extent of the injury and the number of people injured. With medical expenses the way they are today, how much would it take to pay for the care of someone who was paralyzed in a car accident? What would be the costs of the surgery? Hospitalization? Rehabilitation? How much would it take to pay for the injured person’s job loss? We are no longer talking about thousands. We’re talking potentially hundreds of thousands. A loss like this would be a catastrophe for everyone.
Unfortunately, Liability Coverage is where people often choose to limit their coverage to the minimum requirements of their particular state. State limits are often presented like this: $25,000 per person, $50,000 per occurrence, and $10,000 in property damage. That means that in an accident, the most your insurance company would pay would be $25,000 for each person you injured, not to exceed a total cost of $50,000. Additionally, you would be protected for up to $10,000 in damage to the other person’s vehicle. How many days in the hospital would $25,000 cover? Not many. So who pays the extra millions upon thousands in medical costs? You do.
What many don’t realize is that the most expensive part of your auto insurance policy is your Collision Coverage, the part that protects you the least. Liability protection is inexpensive, but provides the most coverage against catastrophic loss. You can increase your coverage to $100,000 per person, $300,000 per incident and $100,000 for property damage for just a few dollars more per month.
So to save money right away while increasing your coverage where it really matters, increase your deductible on your Collision Coverage to $1,000 or $2,500. If you’re still not comfortable going that high, do what it takes to save $1,000, and when you do, raise your deductible. I know, I know, it’s easier said than done. But would you rather pay yourself or pay the insurance company forever? $1,000 is an attainable goal and allows you to control your coverage. If your car is older and paid off, drop collision coverage altogether and increase your liability limits as high as possible.