Pros and Cons of Raising Your Car Insurance Deductibles

Your car insurance deductibles determine the amount you have to pay out of your pocket before your insurance company pays towards the damages you incur. Your auto policy declarations page will list the types of coverage you have and the applicable deductibles for each vehicle in your policy.

Typically, the following coverages have deductibles:

• Comprehensive - this coverage insures your vehicles from damages due to fire, flood, etc.
• Collision - this coverage pays for damages occurring to your car from an accident.
• Mechanical breakdown - this covers newer vehicles for mechanical breakdown other than normal wear and tear.

Your insurance premiums depend significantly on the deductibles you choose. The lower the deductible, the higher your premium. But before signing up for your auto policy, you must assess your risk of incurring damages and consequently the deductibles you require.

Here are some of the pros of going with increased deductibles:

• You have to pay a lower auto premium
• If your vehicle has sparing use and is more frequently in your garage, you can stick with high deductibles.
• If your car is old and has a low book-value, it does not make economic sense to pay big premiums on it. You may be better off getting rid of it and buying a new vehicle in the event of an accident.
• If you have been a careful driver and have a good driving record, you can afford to have high deductibles

Here are some of the cons of going with increased deductibles:

• When you have damages to your car, you have higher out-of-pocket expenses with large deductibles.
• Those living in high-crime areas that are susceptible to theft or vandalism are at greater risk of having to spend more with high deductibles.
• If you live in or near a traffic-prone zone such as a city downtown, you face a higher risk of accidents. In such scenarios, low deductibles are advisable.
• If you are a newly licensed driver, increasing deductibles is a bad idea.

Commonly offered deductible amounts are $100, $250, $500 and $1,000. Some companies also offer zero-dollar deductibles.