How much do you pay for your auto insurance deductibles? Are you paying $50 or $500 a year? If you’re like most people you don’t know and frankly don’t care. Hey, I don’t blame you for being disinterested in insurance but I am willing to bet you’d be interested in having an extra $500 in your bank account. If I’m right then read on.
In this article I will teach you how to make smart decisions regarding your deductibles. You could save well over 15% or more on your car insurance and you don’t even have to switch to Geico.
Whose Advice are You Taking?
I worked for Amica Insurance (top ranked insurance company in the nation according to J.D. Power and Associates) for several years as an agent. I counseled thousands of customers during my time at Amica and discovered that most people did not have a clue about deductibles. It was not uncommon for me to save the average customer hundreds of dollars simply by sharing what I’m about to share with you.
I also learned that most insurance agents did not share this lesson with their customers. I think the fact that most agents work off of commission might have something to do with it. Luckily at Amica I never had the dilemma since we were paid a salary. But it was interesting to hear people’s reactions when you told them how much they could save by following my advice. It was excitement mixed with regret.
Insurance Terms Defined
Let’s first define some insurance terms in a simple way. I realize just the word insurance can put many of us to sleep but bear with me. I’ll only cover the essentials.
Actual Cash Value (ACV): this is the current market value. It’s what something cost new minus deprecation, e.g., in 2008 you paid $15,000 for your car and now it’s worth $10,000.
Deductible: is the amount of money which the insured party must pay before the insurance company’s own coverage plan begins.
Collision Deductible: covers damage to your car when your car hits, or is hit by, another vehicle, or other object.
Comprehensive Deductible: (aka Other-Than-Collision) covers damage to your car for theft, flood, fire, vandalism, falling objects or contact with animals.
Self-Insurance: A method of managing risk by setting aside a pool of money to be used if an unexpected loss occurs.
Now you enough to be dangerous. Remember, knowledge is power. Your agent may be a great guy. But this is your money and your insurance so you need to be well informed in order to make the decisions that are best for you. Knowing some simple terminology shows that you’re smarter then the average consumer and hopefully your agent picks up on that.
There are three questions you must answer before you can make an informed decision.
- What is your car worth? The actual cash value, not sentimental. If you don’t know then go to www.nada.com to find out.
- How much is your collision deductible costing you?
- How much is your comprehensive deductible costing you (this coverage is usually less expensive)?
Would You Rather Pay Yourself or the Insurance Company?
How much are you paying for collision and comprehensive coverage? If you’re paying $500 a year for these coverages then that’s $5,000 over the next ten years. Think about this. If you don’t make a claim in that ten year period guess who made $5,000? Now if you choose to cancel your coverages and pay yourself instead then you get to keep that $5,000. What’s the catch? Well, you could have an accident in those ten years that exceeds $5,000.
Of course if you drive a $50,000 car then this wouldn’t apply to you the same way. The point is to be intentional about how you spend your insurance dollars. Don’t pay for something you don’t need. And don’t pay for something that you could self-insure.
How to Have “The Talk” with Your Insurance Company
Be prepared. Before you call write down your questions and familiarize yourself with the terms I defined earlier. And do your homework on the ACV (Actual Cash Value) of your vehicle(s) prior to calling.
Remember, you don’t have to make the decision during this call. It’s OK if you want to take some time to think about it after you gathered the information. One last piece of advice I’ll leave with you: listen to your insurance agent’s counsel but don’t let them make decisions for you. A good agent understands that it is her job to educate not dictate. If you find that your agent won’t let you make your own decisions maybe it’s time to shop around.