Sometimes the most down-to-earth advice comes from the most unlikely source. Case in point—comedian George Carlin observed, “Weather forecast for tonight? Dark.”
Yep, just like dark is part of the day, the risk is part of life. Working around dark is easy—turn on a light! But how do you protect against the day-to-day risks of driving a car? Insurance.
Insurance can’t prevent accidents but can blunt the financial repercussions by reimbursing you for costs incurred as a result. How much financial protection you will have depends on your policy limits and your deductible.
When your car is damaged and another driver is not at fault, your insurer reimburses your repair (and, depending on the policy, replacement) cost up to the limits of your policy (if any), less your deductible. Your deductible is “your skin in the game”—what you will pay before the insurance company pays anything.
Deductibles come into play with two types of coverage:
- Collision—Your car hits something and is damaged, and no other driver is at fault e.g., you skid on an icy road and hit another car or a tree.
- Comprehensive—Your car is damaged by something “other than a collision” e.g., a deer shatters your windshield or hail damages the finish.
A higher-deductible policy is cheaper than one with a lower deductible because the insurance company has less exposure. If the premium is, let’s say, $100/year lower for a higher-deductible policy, you might be cash ahead, especially if you don’t file any claims.
Choosing a Deductible Amount
What factors should you consider when you choose your deductible amount?
- The likelihood of a claim–Nobody has a crystal ball so you need to make some educated guesses. What is the track record of those who drive your car? How often do you drive? Where do you drive? City? Highway? Winter weather?
- Your financial situation—What could you afford to pay out-of-pocket? Remember a higher-deductible policy has lower premiums because you are on the hook for more money before the insurance company kicks in. Don’t choose a higher-deductible policy if you can’t pay the deductible amount.
- Let’s say that late at night while driving home through a wooded area, a deer jumps out in front of the car. The windshield shatters and costs $3400 to replace.
- If you have a $1000-deductible policy, you will pay $1000 and the insurance company will pay $2400.
- If you have a $500-deductible policy, your premiums will be more than if you have a $1000-deductible policy. The tradeoff? You will pay $500 and the insurance company will pay $2900.
- Perhaps you skid on an icy highway and skid into the back of another car. The cost to repair the bumper is $2500.
- If you have a $1000-deductible policy, you will pay $1000 and the insurance company will pay $1500.
- If you have a $500-deductible policy, you will pay $500 and this insurance company will pay $2000.
These are merely examples. The exact cost of repair depends on the make and model of your car as well as on the amount of damage. Also, some insurance companies will waive the deductible if the windshield can be fixed rather than replaced.
Bottom line? You’ve got a lot to think about when buying car insurance, but no need to go it alone. Contact the folks at Homewood Insurance. We can’t tell you what deductible to choose but they can talk over your risks and financial exposure, outline the advantages and disadvantages of your options.