Can you save money by raising your decuctible? With an emergency fund in place you may be able too, here’s how:
A few years back I became incensed after receiving a statement from my car insurance company. I had just moved from Maine to Quincy, MA and had registered my car in my new town. You can imagine my surprise when my bill went from $700 a year to over $2300.
Little did I know at the time, but Massachusetts utilizes an insurance premium distribution program. Essentially, drivers from the outlying suburbs and towns are forced to pay part of the insurance premiums of the “riskier” drivers who drive primarily in the congested urban areas. Massachusetts does this to “ease the premium burden” of city drivers. I reasoned that I couldn’t do much about state law so I looked into other avenues of reducing my bill.
Then it donned on me: “why not call that lizard guy I see on TV?” He claims he can save me a bunch of money on my car insurance. So, I call Geico and SUPRISE, they don’t even offer car insurance in Massachusetts because “the system is too messed up”. I can’t blame them for that!
Then I call my agent with USAA and ask them if there is anything that I can do to lower my premiums? He asked me if I wanted to raise my deductible from $500 to $1000 and if I did I would save nearly $300 a year in premiums. To answer his question I had to step back and ask my self what this policy change would actually mean.
If I had an at fault accident I currently would only have to front $500 of my own money to cover any liabilities to myself or others. If I changed my policy I would have to cough up $1000 in the above scenario but I would save $300 for every year that I didn’t have an accident.
In other words if I could go for 1.67 years (20 months) I would break even, and every year I went after that would be additional savings! It really does pay to be a safe driver!
One caveat is to make sure that you can cough up and extra $500 in the event you have an accident (hence the emergency fund). Each individual case will be different but it doesn’t hurt to call your insurance company and ask them what the difference would be in your case.
Simply divide the difference in deductible by the difference in annual savings and this will give you the number of years you need to drive without being in accident. Then you simply need to ask yourself: “can I go this long without an accident or other claim?” Unless you’re an incredibly insecure driver the answer will always be YES!
Related Articles:
Deceptive Car Insurance Advertising
Unlimited Mileage Car Rentals
Identity Theft Prevention Tips
{ 1 trackback }
{ 6 comments… read them below or add one }
Sounds like Massachusetts is a socialist state.
Found ya via TMMO forums. I’m a Blogger blogger myself! Glad to see ya joined its ranks.
I like the writing but one suggestion might be to make sure your paragraphs are not too long. What may look like a lot of “white space” or short paragraphs in Word turns into blocks o’ text with a slimmer column in Blogger.
Since you are discussing what is (for some of us) possibly complicated explanation for first-timer, simpler, smaller “bites” of info are easier to understand!
Blessings!
I would LOVE to raise my deductible to $1,000 from $500. However, since my vehicle is financed through my credit union, they require me to have at most a $500 deductible. It just sucks if you ask me!
Wow! That does suck Adam! I’ve never heard of a bank or credit union having a max insurance deductible, but it makes sense from the credit union’s perspective!
Have you tried speaking with the credit union manager(s)? Maybe if you set up an emergency account with them for the amount of your deductible, they will wave the $500 max so you can take advantage of lower insurance premiums!
Good luck, and happy driving!
In “theory” your higher deductible, with a solid emergency fund in place sounds great, BUT, stop and consider how long it will take to be reimbursed for your out-of-pocket deductible when involved in a “not my fault” accident. That sheds a different light; I have a $250 deductible (it’s worth every penny) and was an innocent bystander in an accident involving 2 other vehicles in June of 2008. The person that caused the accident (knowingly ran a red light) was underinsured, and now a law suit ensues. I (finally) got my out-of-pocket deductible reimbursed to me in May, 2009. 11 months! The big “what if” is that in todays climate we need every penny we’ve socked away and/or saved for our emergency fund. If you’re not able to replace that money for some time, where do you see a cost savings for a yearly savings of $300? I’d have been in a world of hurt had my deductible been $500, and up the creek if it had been $1,000. The difference between your old cost and new cost is outrageous and it makes this yearly “savings” of $300 negligible in the big picture. It’s $25/mo. when your policy charges went up an average of $133/mo. I simply wouldn’t mess with the deductible. Just my thought.
Love your blog, BTW; keep it up
Thank you for the comment Pattie! And thank you for supporting Trees Full of Money! I’m glad to see interest is picking back up around my website!
It is a matter of personal preference I suppose, when it comes to deciding which deductible is best for your particular situation. Personally, I would rather take my chances with lower insurance premiums with a higher decutible if I would “breakeven” in two years or less.