One way to save money on auto insurance is to increase your deductible. Your deductible applies to collision and comprehensive claims, and is the out-of-pocket cost you are required to pay for vehicle damage before your car insurance company pays the rest of the bill. For many, the deductible is $200, $500 or $1,000.
Increasing your deductible can mean substantial savings on auto insurance. A shift from $200 to $500 could save you 15-30 percent on your insurance rates, according to the Insurance Information Institute. Shift it into high gear, by increasing your deductible from $500 to a $1,000, and the III says you could save 40 percent on auto insurance.
Why the big savings? When you increase your deductible, the number of small claims you are likely to file is reduced, according to the National Association of Insurance Commissioners (NAIC). By taking on a higher deductible, you are assuming the risk for smaller claims.
But keep in mind the financial responsibility you are taking on before you increase your auto insurance deductible. You must pay the agreed upon deductible before your auto insurance company is committed to pay for the rest of the repair bill. So if you can't pay the $1,000 deductible, you might end up stuck without a car.
Before you raise your auto insurance deductible, consider how much you can afford out-of-pocket. If your budget is tight, don't raise your deductible to save a few bucks in the short term. Establish an emergency fund that is reserved for your deductible to ensure you have cash on hand in case of an accident.
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