Do you know how much you can afford when it comes to setting car insurance deductibles? There are many things to consider when trying to sort out your car insurance options. It is best to go into that process knowing as many of your options as possible.
Setting your car insurance deductibles means examining several areas of your personal finances. That includes your money needs, emergency fund, your current amount of disposable cash left over after your monthly bills and mortgage are paid for. You will also need the overall value of your vehicle.
Your Money Needs
For some, the goal of setting a high deductible is to lower out-of-pocket costs and keep money in the bank for other uses. For others, the goal of lowering the expense of an accident or other insurance-related problems when they happen is more important. Setting a high deductible reduces your upfront costs, but elevates your financial responsibility for getting the vehicle repaired after an accident.
Which is more of a priority to you? Some consumers make the mistake of setting a high deductible thinking that they will never be so careless as to get into a car wreck, have their vehicle towed to an impound lot, etc.
But when it comes to insurance, the best policy to assume at some point you WILL have to use the coverage. Set your deductibles with this in mind and you will suffer less financially in the event of an accident.
The Value Of Your Vehicle
For all deductibles that involve damage to your vehicle, it’s important to assess how much the car is currently worth. You’ll also need to know what the insurance company is willing to do in a worst-case scenario with that vehicle, and how many payments are left on it, if any.
When setting deductibles, you will want to know if it makes sense to repair the vehicle depending on its age, condition, and value. A higher deductible on a car you plan to keep long term is one thing; a high deductible on a vehicle you owe more on than the car is worth is quite another.
A Smart Formula For Setting Auto Insurance Deductibles
The most basic and foolproof way to avoid getting burned by high deductibles? Set aside the exact amount of that deductible for use in the event of an accident. If you cannot afford to pay the deductible you set for yourself, it’s best to consider lowering that amount to a more reasonable level. Assume you WILL have to pay that deductible at some point for best results.
Joe Wallace specializes in personal finance, military affairs, and consumer protection topics. Since 1995, his work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and collects unusual vinyl records, which gives him an excuse to write the vinyl blog Turntabling.net.