We already know the importance of adequate savings don’t we? Well here’s an additional benefit for having savings – You can save on your car insurance!
You know about your car insurance deductible? This is the amount you have to pay on an insurance claim before your insurance kicks in to pick up the repairs. Say you have a $500 deductible. You get into a fender bender and file a claim to have your bumper repaired. An estimate for the repairs is $1500. You have to pay $500 and insurance picks up the $1000. If your deductible were $1000 then you pay $1000 and insurance covers $500. Get it?
So why not make the deductible as low as possible?
Sounds reasonable. You would rather your insurance pay more and you pay less. Things is though, the lower your deductible the higher your premium is! You pay more on your plan when your deductible is low. This is the insurance company’s way of getting that extra cash layout back before an accident. The opposite is true too. The higher you make your deductible the lower your premium payments are.
It’s a trade-off between what you pay on your premium versus what you pay for repairs.
Here’s where your savings comes in – If you have adequate savings to cover a higher deductible in the event of an accident then you can raise your deductible to pay less on your premiums!
Savings=Lower Insurance Payments
Personally, I’d much rather have the savings on my premium now than save on my deductible in the event of an accident later on. A good savings plan gives you the flexibility so you can save on your car insurance.
Do you have an extra $500-$1000 in your savings that could cover repairs in case of a car accident? If you do you should really call up your insurance provider and ask how how much you can save on your premiums by raising your deductible!
And did you know – If you get into a car accident and it’s clearly another driver’s fault then the other driver’s insurance should cover your deductible. Also, some insurance providers offer deductible bonuses for not failing a claim for a certain amount of time. For example you might get a $50 deductible credit for every year you don’t have a claim. Check with your provider. These are two more reasons to raise your deductible!
But make sure you have the savings!
Don’t raise your deductible just because you want a lower payment. If you don’t have the money to cover your deducible then you can be asking for trouble if you have an accident. Imagine getting into an accident then having to come up with $1000 to get your car fixed when you don’t have the money. You might be stuck charging it or doing without your car.
So if you have adequate savings and a low car insurance deductible then you should really look into raising your deductible. Let your savings save on your car insurance!
Christina@Northern Cheapskate says
We had this very same discussion in our house, too!
Despite numerous car vs. deer accidents (we live in deer country), we have still seen a slight savings by having the higher deductible.
It seems to me that insurance is always a bit of a gamble, to me. But when you have $1,000 deductible, you are a lot more careful!
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Yeah, insurance is a gamble. You pay just in case something happens. With a higher deductible though I think you’re taking less of a gamble. You’re saying if something happens I’ll deal with the payment but for now I’m only paying for the coverage I need.
We have higher deductibles on both our health insurance and our auto insurance. This way, we have more money in our pockets. We are both reasonably healthy, and we haven’t had any sort of a ticket or infraction for more than 7 years. So we have an emergency fund to cover our deductibles, and we continue to keep doing what we’re doing — and crossing our fingers.
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Seven years is a great run! That’s 7 years of saving with lower premium payments which I’m sure far exceeded the deductible amount in that time. This is a prime example of how you can save with a higher deductible! Imagine making the higher premium payments for 7 years?
Though I try to keep my health insurance detectable as low as possible because I do use it – a lot, I keep my auto insurance detectable high because it just makes more sense for me to do it. I wouldn’t do it if I didn’t have the money.
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And that’s important here – you have to have the money. It can make sense for some people to have a lower deductible if their savings can’t handle it. I can see why you would have your health lower though. I would imagine that would get used more (unless you’re really a bad driver!).
David Leonhardt says
The thing is, even if we have a minor crash, we would’t want to worry about the deductables. Making a claim would only raise our rates. Insurance really is meant to be for the big hope-they-never-ever-happen events.
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Yeah, a lot of the time it might not even be worth the future rate increases for smaller claims. You’ll probably pay out of pocket and not claim it anyway.
El Cheapo says
I just wanted to comment that I chuckled when I saw the image of the bumper-sticker when I read your post. That was funny and a good for an early morning laugh.
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I do have adequate savings, I’m going to have to look into raising my deductable.
Now that we can, we go with liability-only on our cars, although it is a whole lot ($300K liability with a 1.5M umbrella policy). We figure that once we have enough cash in our long-term emergency fund to buy a car, we don’t need non-liability insurance.
This saves about $1K/year.
Another area where this approach matters is in extended warranties, which are also a type of insurance. If you have enough money in your e-fund to replace your electronic gadget or appliance after its base warranty has expired, there’s no reason to buy an extended warranty (although with the possible exception of a notebook computer, there’s no reason to do so for any electronic device, ever).
Great point on the extended warranties!