What Is A Deductible? How High Should I Set Them?
According to the New York State Department of Financial Services, a deductible is an amount that you agree to be responsible for in the event of a loss under the physical damage or property loss (collision or comprehensive) coverages of your policy.
To further illustrate what deductibles are, let’s take a look at an example. If you get into an accident that causes $5000 in damage to your vehicle, and your collision coverage deductible is set at $2000, you will have to pay $2000 and your insurance company will be responsible for the remaining $3000.
Deductibles are offered on some policies to give drivers flexibility in the cost of insurance and the amounts they wish to be responsible for. You may be able to reduce the cost of your auto insurance by raising the deductible amounts on physical damage coverages.
As a first step, you should review the current amounts of deductibles you carry on your policy to determine whether it makes sense to pay out of pocket for a larger portion of the loss in the event of an accident, in return for a lower premium charge. Under New York State law, your insurer is required to show you exactly how much you may save by adjusting your deductibles.
What portion of my policy carries deductible options?
There are two areas of coverage, comprehensive and collision, that cover physical damages where deductible options can be applied. Typical amounts are $250, $500 or $1000 but amounts can go as high as $2500.
Combined collision and comprehensive insurance are usually referred to as “full coverage.” Here is a look at how they break down.
- Collision covers damage to your car after you collide with something. – a car, a wall, a tree, anything except an animal.
- Comprehensive covers anything else – theft, vandalism, flood, a falling tree, or striking an animal.
These two coverages can pay out the cost of replacing your vehicle minus your deductible. The market value of your vehicle and the likelihood the insurer will have to pay out the full value of your car will affect how much you pay for the “full coverage”.
Three ways to save on full coverage insurance rates
Provided you have a little extra savings set aside to cover an unexpected expense, there are three common ways to save money on your full coverage auto insurance rates.
- Drop coverage if you already own your car outright and the replacement value is not too extravagant.
- Shop around and get quotes from different providers as rates can differ by hundreds of dollars from one provider to the next.
- Raise your deductible amounts.
Why does raising my deductible save me money?
Collision coverage and comprehensive coverage are unlike liability coverage which does not have an option for setting a deductible. Your collision and comprehensive insurance only pays out an amount that exceeds your deductible. This means less risk for your insurer and results in a lower premium. Also, if you carry a higher deductible you will be less likely to make as many claims for minor dings and scratches. Fewer claims generally helps lower premium rates.
How much can I save for each deductible amount?
Let’s consider a study by Quadrant Information Services. The study collected average rates from six large insurance providers over three deductible levels. The sample data used an example of a 2015 Honda Accord LX with the following liability coverage:
The data collected was averaged over 10 zip codes for each state. The savings for New York State is as follows.
- Increasing deductible from $250 to $500 saves $134 or 7.4% (as compared to the national average of $167 or 8.3%).
- Increasing deductible from $500 to $1000 saves $162 or 9.7% (as compared to the national average of $201 or 10.8%).
- Increasing deductible from $250 to $1000 saves $370 or 17.7% (as compared to the national average of $367 or 18.1%)
It becomes clear that carrying a deductible of at least $1000 can gain you between 10% and 17.7% of savings in New York State. It is also important to compare rates from different insurance providers to get you the best quote possible when shopping around for even more savings.
Can I get a zero deductible comprehensive and collision policy?
With all this discussion of lowering your deductible to save money on your insurance, you might be wondering if you could actually get an auto insurance policy with no deductible. According to the New York State Financial Services Department, New York State insurance law prohibits an authorized insurer from offering a deductible of less than $50 for fire, theft or comprehensive insurance and $100 for collision insurance coverage (on private passenger automobiles registered in New York State). One exception is that window glass coverage may be sold without a deductible.
There is no exception to the deductible requirements for antique, special, or historical vehicle programs.
When it comes to setting deductibles, the first step is to review your current policy and work with NewYorkMotorInsurance.com to get the best possible quotes to determine if your current provider is giving you the most savings for your level of coverage. The second step is to collect quotes for a plan with increased deductible amounts. Your insurer is obligated to provide you with the information on the amount you would save for each value of deductible. The third and final step once this is complete, is to switch insurers if you are not happy with their prices.