Diminishing Deductibles Explained
Last Updated on April 18, 2021
When shopping for car insurance policies, you might see a feature called a diminishing deductible (sometimes called a “vanishing” deductible). This sounds appealing, but how does it actually work? In this article, we’ll take a look at diminishing deductibles so you can decide if they are a good option for your insurance policy.
What Is a Deductible?
In order to understand how diminishing deductibles work, you need to understand what a deductible is. Virtually every car insurance policy will have a deductible, and you’ll need to factor that into your budget when shopping for one.
The deductible is the amount you’ll pay out of pocket if you file a claim before your insurance policy kicks in. For example, if you have a deductible of $200 and you file a claim of $1000, you’ll need to pay the $200 first and the insurer will pay the remaining $800. Typically, deductibles will only apply to collision and comprehensive claims. You usually won’t have to pay a deductible on liability claims, since the other party’s insurance usually covers it.
If you have a higher deductible, you’ll usually pay a lower monthly premium and vice versa. This can be a good way to save money on your monthly insurance payments, especially if you are a safe driver. However, it’s important to make sure you have the deductible cost built into your budget. You don’t want to end up in a position where you can’t pay your deductible bill in the event of an accident.
What Is a Diminishing Deductible?
Deductible costs can be very high for some policies. To minimize this financial risk, some insurance companies offer diminishing deductibles for safe drivers. With a diminishing deductible, you’ll start your policy with a normal deductible amount. However, if you maintain an entire year of safe driving and no claims, you’ll qualify for a reduction in your deductible. Over time, this can dramatically lower the cost of your car insurance.
If you get into an accident, you’ll only be responsible for the reduced deductible amount. However, after the accident, your deductible usually resets. You’ll start the process over and you’ll need to maintain a clean record again in order to reduce your deductible. Each insurance company has different rules about this, so it’s important to read your policy carefully and make sure you understand.
Diminishing deductibles offer obvious benefits for the policyholder. However, they benefit the insurance company as well by encouraging loyalty among their customers. They also encourage customers to drive safely and avoid accidents whenever possible.
Which Insurers Offer Diminishing Deductibles?
Not every insurance company offers diminishing deductibles, but many major national insurers are beginning to offer it as a perk. Some of the most well-known insurers that offer diminishing deductibles are Allstate, Travelers, and Progressive. There are also many smaller regional companies that offer this feature as well.
However, some of the most popular national insurers do not offer diminishing deductibles. Geico is one of the most notable insurers not to offer a diminishing deductible. Even if a company doesn’t have a program like this advertised, it can’t hurt to ask an agent about it. They may be able to help you find similar discounts and rewards that will save you money.
What Should I Consider When Signing Up for a Diminishing Deductible?
Diminishing deductibles are a great add-on for any insurance policy. Even if you are a safe driver, you never know when you could get into an accident. A diminishing deductible can give you peace of mind and help you save money if something catastrophic were to happen.
However, every insurance company’s diminishing deductible program is going to work differently. That means that you need to read the fine print on your insurance policy before signing up. For example, some policies will offer diminishing deductibles in six-month periods, while others will offer them in year-long increments. Additionally, each company has different policies when it comes to resetting your deductible. It will usually reset after you get into an accident or have to file a claim. However, some companies will also reset your deductible if you need to make changes to your policy.
Other Ways to Lower Your Insurance Rates
When shopping for an insurance policy, it’s also important to note that there are a few potential alternatives to a diminishing deductible. Many insurance companies now offer tracking apps. These apps use your smartphone to detect smart driving habits, including speeding and brake response time. When you drive safely, these apps help save you money on your policy, but they could also increase your monthly premium if you aren’t careful.
If you feel comfortable having your driving habits tracked, these apps can help you save a lot of money over time. They don’t contribute directly to your deductible but instead help lower your monthly premium. However, not everyone feels comfortable with their insurance company monitoring their driving habits all the time. This is important to consider before you start a program like this.
Additionally, some insurance companies are starting to offer mileage-based insurance policies. These policies charge you based on how much you drive, and are a great choice for people who only drive occasionally. Many people will take public transit in the city and only use their cars for longer trips. The rise of remote work has also meant that many people are only commuting to the office occasionally, if ever. A mileage-based insurance policy is a great option for these situations. Some companies may even let you combine a mileage-based program with a diminishing deductible.
How Can I Find the Best Insurance Policy for Me?
Finding a good car insurance provider can be tricky. There are so many options to choose from, so it can be hard to narrow things down and find the best company for your needs. Features like a diminishing deductible can be a good way to narrow down one company over another.
When shopping for a car insurance policy, it’s important to get quotes from multiple companies. Since each insurer has its own method for calculating rates, you might find that you get wildly different quotes from one insurer to the next. Of course, you’ll always want to ask about discounts and programs like diminishing deductibles that can help save you money. You also won’t want to skimp on coverage – in addition to the required liability coverage, it’s always helpful to get additional collision and comprehensive coverage.
Diminishing deductibles are a great reward for safe driving. While it may not seem like a big deal, they will be very helpful if you are ever in an accident.