Last week, I had the unfortunate experience of denting my car’s driver’s side by hitting a wall. Despite this regrettable mishap, it was the first time in nearly 13 years of driving that I had to file an auto insurance claim.
Last year, we decided to increase our car insurance deductibles from $500 to $1,000 to save money. Since we rarely needed to make an insurance claim, we thought a $1,000 deductible would lead to significant savings. But when an accident did happen, we realized this plan had its downsides.
After the incident, I told my husband about it, feeling distressed at the thought of paying $1,000 from our savings due to my mistake. However, once I calmed down, I reassured myself that keeping a $1,000 deductible still made sense. Here’s why:
If the damage to the car was around $700, I would choose to pay for it myself to avoid an increase in our insurance premium. Many people opt to avoid claiming insurance for minor damages to prevent their premiums from going up. Therefore, a $1,000 deductible is logical since any minor damage wouldn’t lead to a claim.
A $1,000 deductible means that we can handle smaller repair costs without major impact on our savings, but it’s still high enough to justify a claim if the damage is significant. If we are already willing to pay up to $1,000 out-of-pocket to avoid a premium hike, it makes sense to save on premiums with a higher deductible.
The key is to have $1,000 available in savings as a buffer for insurance claims. Recently, while reviewing my father’s auto insurance policy, which had a $250 deductible, I asked him when he had ever filed a $250 claim. He hadn’t, as he preferred to pay for any damage costs between $1 and $700 out-of-pocket rather than risk a premium increase.
So, the best strategy is to keep $1,000 in savings, reduce premiums, and drive safely to save money. As for me, I’ve started cycling to work.