Lower your auto insurance rates by raising your deductibles – Good idea or bad?

These are trying economic times and simply turning on the television can put you in a state of depression. You may be a casualty of a layoff at work, a downsizing or a flat out firing and you still have to pay that stack of bills that are piling up on your counter. The temptation to cut your car insurance coverage to save money may end up costing you more in the end than it saves you today.

You may be tempted to raise your auto insurance deductibles to save a few hundred dollars on your car insurance, but is this really a good idea? Let’s take a look at the benefits of both scenarios.

Benefits of having higher comprehensive and/or collision deductibles

• You save money! Higher deductibles mean you will pay less for your car insurance coverage.
• You can take the money you save and put it into your savings account or “rainy day” fund
• As long as you maintain a financial cushion you can pay the higher out-of-pocket expenses needed in case of a claim

Benefits of having lower comprehensive and/or collision deductibles

• You pay less if you have a car insurance claim
• If you collide with another car or object your collision coverage will pay for the damage with less money out of your pocket
• If your car gets hailed on or you hit an animal, your comprehensive coverage pays to repair your car with less money out of your pocket

If you currently have $250 deductibles, raising your deductibles to $500 or even $1,000 can save you a significant amount on car insurance depending on how many vehicles you have insured for comprehensive and collision coverage on your policy.

But what happens if you raise you deductibles, get a refund check for $300, use that money to pay bills, then you are involved in an accident that renders your vehicle inoperable? How are you going to come up with the $500 or $1,000 needed to pay the deductible and get your car fixed?  This is the dilemma that consumers face when making decisions about their car insurance deductibles.

The higher your deductible, the more money you save. The lower your deductible, the less money you’ll pay out-of-pocket at claim time. Take a look at your personal situation and your propensity to having auto insurance claims. Are you a good driver? Do you have a short commute? What time of day do you drive? Do you have young, inexperienced drivers in your household?

The answers to these questions may help you make a decision on whether to raise your auto insurance deductibles. The more likely you are to have a claim, chances are you’ll be better off with a lower deductible. Car insurance companies don’t like drivers with high claim frequency, so be warned that if you have too many claims, you may face non-renewal from your company.

Your deductible limits are a personal decision and your financial situation plays a large part in the deductibles you choose. If you have enough of a cash cushion to absorb higher out-of-pocket expenses in the case of a claim, then you might be better of with a higher deductible and you can then save on your car insurance premiums. However, if you have no savings, then you will be hard pressed to come up with the money needed to pay your deductible to get your vehicle repaired.