The Cost of Saving $100 on Your Auto Insurance

Data from the U.S. Department of Transportation indicate that there are over 200 million licensed drivers in the country, and everyone knows that to own and operate a vehicle, auto insurance is pretty much a necessity. To reduce the cost of insurance, you may search for discounts, shop around to see what each of the various companies have to offer, and you may even combine auto insurance with another policy, like homeowner’s insurance, to save a few bucks.

In your efforts to save on auto insurance, you may also choose to adjust your coverage amounts up and down a bit until you reach an affordable range. Your policy’s deductible is one of those things you can adjust.

InsuranceQuotes.com recently conducted research on deductibles and how they impact the cost of an auto insurance policy. The results of the research indicate that on average (nationwide), if you raise your deductible from $250 to $500, you will save 7 percent on your premium costs. The more you raise your deductible, the more you’ll save, as raising a $250 deductible to $1,000 results in 9 percent savings, and if you raise your deductible from $500 to $2,000, your average savings will be 16 percent.

These numbers represent the savings for a 45-year-old married female who’s employed and has a clean driving record and good credit. The amount of savings you actually receive varies significantly based on your demographics, including (and especially) where you live.

In some states, like Massachusetts, the impact of raising or lowering your deductible is far more significant. With the nationwide average cost of auto insurance at $797, this means you may save more than $100 each year by increasing your deductible.

A phone call to your insurance company can result in some relatively decent savings. That is, if you’re willing to give up some of your coverage. Should you raise your deductible to save on your premium?

Source: Erika Rawes/Data from InsuranceQuotes.com

Source: Thinkstock

Weighing the pros and cons

Although you save money upfront, if something happens and you have to file a claim, you are going to have to pay more out-of-pocket. Auto insurance typically offers three main types of coverage: comprehensive coverage, collision coverage, and liability coverage.

The example driver in the Insurance Quotes study has $100,000 for injury liability for one person and $300,000 for all injuries; for comprehensive and collision coverage, her deductible increased from $250 to $500, and so on.

Your insurance company may offer separate deductibles for comprehensive claims, like theft or vandalism claims, and collision claims, like automobile accident claims. If you raise your deductible to $2,000, you have to pay that amount out-of-pocket, and the insurance company will cover the amount over that $2,000.

So do you save now and potentially pay more later? Or do you pay more to financially protect yourself in the event that something happens?

Here are a few tips to help you make the decision, courtesy of the InsuranceQuotes.com report:

  • Evaluate your finances. The additional protection is more than likely not worth neglecting other financial obligations. You can only afford what you can afford.
  • Compare different scenarios and take advantage of other discounts. For some people, the savings end up being huge. For instance, a $1,000 policy may turn into a $500 policy. If increasing your deductible will cut the cost of your insurance in half, you can bank that money. If you need to use it to cover your deductible, then you have it, and if not, then you’ve placed yourself in a better financial situation.
  • Consider your individual situation. How much is your car worth? You probably don’t want a deductible that’s higher than your car’s value.
  • Beware of vanishing deductibles. Some companies offer these vanishing deductible programs, where your deductible decreases each year that you don’t have an accident. The problem is, you generally pay higher premiums for this benefit.

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