Choosing the right auto insurance deductible and the repercussions of

Choosing the right auto insurance deductible and the repercussions of making auto insurance claims

Like everything else, auto insurance is a necessary, but pricey expense. When you make auto insurance claims, your policy becomes an even spendier deal. You may not realize that when you make auto insurance claims, even minor ones, when your policy comes up for renewal, your premium may go up substantially. Auto insurance companies have quite complicated algorithms which assess the risk of each insured individual.

When shopping for auto insurance, or updating your current policy, ask your broker for advice on choosing a deductible and the effect of a range of deductibles on your premium. A high deductible generally decreases your monthly premium amount. The down side is that you are responsible for the cost of repairing damages to your vehicle, up to that amount. If you choose, say, a $500 deductible, be prepared to be able to sustain the cost of the repairs or drive around with the damages evident. A simple fender bender, sustained by hitting your own mailbox, may not require a police report, but can significantly detract from the appearance of your car, impacting your resale value as well.

However, if someone runs a red light and causes more than $200 in damage (this figure may vary from state to state) to your vehicle, a police report is required. This means that the accident will be reported to your insurance company in any case, almost certainly resulting in an increase to your premium next time around, regardless of which driver was at fault! Here you have a case of having to make auto insurance claims, whether you like it or not!

Choosing a $0 deductible for your policy definitely raises your monthly premium. The up side to this scenario is that any damage is covered, right down to a cracked tail light. The down side is two-fold. In order to realize the benefit of no cost repairs to the body, you'll need to make an auto insurance claim. Second, if you make a couple of claims which might have cost just $50-100 each as an out-of pocket expense, your premium will increase automatically. One example that fits this situation involves someone clipping your tail light, while backing out of a parking spot, while you're in the grocery doing your shopping. Another common example is the theft of your radio from your unlocked car. However, the insult-to-injury factor arises when you have a $0 deductible, but significant damage to your car in an accident. Your insurance policy will pay for the repairs, but your premiums will go through the roof upon renewal. Some insurance companies may even refuse to renew your policy!

This is why it's important consult your insurance broker, to weigh the amount of your deductible against the corresponding difference in your monthly premium. If you can afford to cough up $100 for minor damages of the parking spot variety, this might reduce your premium by an amount that adds up to $100 a year. If you're lucky, this can be a $100 savings.

Knowing when to make auto insurance claims and how your deductible works is key to optimizing your premium.

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