When to Assume Higher Risk with Auto Insurance

When motorists buy car insurance coverage they pass the risk with accidents and other losses to insurers. The more of the risk you take on the lower your premium should go down. This process is called self-insurance and commonly used by individuals and companies. It is a balance between paying premiums or accepting to pay some losses out of the pocket should they ever happen.

There are several ways of achieving this goal of reducing insurance costs by accepting lower risks yourself. These can be categorized as below;

–          Lowering or dropping some of the cover on older vehicles

–          Increasing deductibles that lower the premiums

–          Paying small damages out of pocket so that you keep premiums low.

Dropping Full Coverage on Older Automobiles

When your car is as old as ten years its value would be low enough for you not to bother insuring it for collision and comprehensive coverage. You should check the value of your auto and see if it is something you can handle. This is especially true when you are planning to buy a replacement car or you are already not using it much.

For example, if the vehicle is around $2,000 worth and you are paying $1,000 for collision and comprehensive coverage and have $1,000 deductible it is sensible to drop these covers. Otherwise, you would have already paid $1,000 for the premium + $1,000 deductibles you will have to pay should you suffer an insured loss. By dropping collision and comprehensive cover you would have the option to use the money saved for a new vehicle.

Adjusting Deductibles to Save on Premium

When the deductibles increased the premiums should come down because you are taking on more of the risk. This also effectively means that you would not be able to make a claim for small losses. For example, increasing deductibles from $500 to $1,000 may save you several hundred dollars. This option may be better than dropping the coverage completely in some cases.

While doing that you should keep a few points in mind;

–          Do you have enough savings in the bank to cover the deductibles? If you have only $500 on your name in your bank account increasing deductibles to $1,000 is obviously going to cause cash problem for you should you suffer a loss.

–          Do you save enough by this practice? If the premiums are not coming down even when you increase deductibles there is no point. Check the savings before going ahead with the decision.

–          Are you likely to have accidents? When you are living in a quite area and you have not had accidents for years you may benefit from increased deductibles.

Paying for Small Damages Out of the Pocket

When you make a claim on your policy you can bet that your premium will go up at next renewal. Paying for small damages out of the pocket allows you to keep quiet about small incidents. Also, remember that you have deductible that will need to come out of your pocket before the insurer pays anything. If your deductible is $500 you will only get $200 when you make a $700 worth of a claim.

You need to consider if it is worth it especially when you will see much more than $200 increase in your premium at the next renewal. The problem will be a lot worse when you have another accident that is out of your budget as well.

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