If you’re looking for ways to lower your car insurance premiums, here’s a list of some of the many ways you can cut premium costs:
- Bundle your insurance policies, such as putting your vehicle, homeowners and life insurance coverage all with one single insurer
- Drive safely and keep a clean driving record
- Graduate from a defensive driving course
- Look for car safety features such as airbags, anti-lock brakes, automatic seatbelts, anti-theft devices, etc.
- Drive a low-risk car
- Drive fewer miles
- Improve your credit rating
- Pay your premium all at once rather than in installments
- Raise your deductibles
Raising Your Deductibles
Of all these premium-saving methods, raising your deductibles is one of the quickest and easiest steps to take. Before doing this, however, you’ll want to make sure that you’re able to handle the additional risk a higher deductible imposes.
What Exactly is a Deductible
A car insurance policy is a way of sharing risk between the policyholder and the insurer. The deductible on your insurance policy is the amount for which you’ll be held responsible in the event that you submit a claim. Typical deductible amounts include $500 or $1000, although most insurers will allow you to carry a higher or lower deductible amount.
If you submit a collision claim that’s covered by your policy and the damage total is $5000, the insurance company will pay $4500 toward that claim if you have a $500 deductible. You’re responsible for paying the additional $500 out of pocket.
The advantage to carrying a higher deductible amount is that higher deductibles generally mean lower premium costs for your coverage. The reason for this is because the greater the amount for which you’re willing to pay toward a claim, the less the insurer has to pay, lowering their financial risk.
The Balance Between Risk and Savings
Saving money on coverage costs is great until you have to file a claim and come up with the deductible amount out of pocket. If you’d find it difficult to come up with $1000 right now if your vehicle got seriously damaged, that amount of deductible is probably too high for you to handle.
A recent survey found that raising your deductible from $500 to $1000 provided an average policy cost savings of 8%-10%. At an average policy cost of $800/year and a 10% savings, it would take about six years to save the difference between those two deductibles.