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Finding the Right Deductibles

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More often than not, when I speak with clients about their insurance, they rarely know what deductibles they have on their auto policy. Worse, most people don’t even know the difference between collision and comprehensive accidents. As insurance brokers, it is our responsibility to properly inform the clients of what they are purchasing, after all; no one would buy a car if the salesmen simply “glossed over” the important details like mileage per gallon, interior design features, and safety devices. So why not follow the same practice when purchasing insurance?

Step 1: Understanding Comprehensive vs. Collision?

The first step in calculating appropriate deductibles is to truly delve into the difference between the two types of auto claims. Here is a quick video on the difference:

To summarize, collision accidents refer to any accident where a vehicle in motion collides with another vehicle or stationary object (besides animal hits). Collision accidents are more severe but also more controllable on the insured’s part. This is why most people opt to have higher deductibles for collision on their policy.

On the other hand, comprehensive claims cover a much wider range of accidents. Vandalism, falling objects, animal accidents, and weather based claims. In my licensing education, I boiled this category of accident down to simply: “a bad thing happened.” It is normally recommended to retain a smaller deductible for comprehensive accidents because they are much harder to control. The best, safest driver in the world can’t do anything about a harsh hail storm denting and marking up his new Toyota Rav4.

Step 2: Setting Each Deductible

With a clear understanding of each type of accident, we can move forward with establishing some guidelines for finding the best deductible. I found that these _____ guidelines direct us to a solid figure that balances self-retention of risk and affordability in premiums.

  1. Review your Driving History – Every case is different. No matter how clean your accident record, there is an optimal deductible to set for your auto policy. Following through with the next three steps is important, but it is always crucial to look back at how you and your other drivers have driven historically. Too often, I see safe, responsible drivers with ridiculously low deductibles and the high premiums to match. Since they are safe drivers, they never get to access the perks of a smaller deductible and effectively get the worst of both worlds.
  2. Compare Comprehensive Versus Collision Risks – Sometimes it makes sense to set both collision and comprehensive deductibles to the same amount. Sometimes it’s better to have a higher collision deductible because it is a more controllable risk. In no case would it ever be applicable to have a higher comprehensive deductible than a collision deductible. Review your policy and investigate where your deductibles lie. Ask your agent why he or she programmed it the way that it is.
  3. Consider Deductible Reduction Programs – Most insurance companies have really enticing deductible reduction programs that allow insureds to decrease their deductibles over time while also keeping a low premium. Most of these programs do this over the course of a couple years: decreasing the deductibles for every claims-free year. These programs normally cost a fraction of a fraction of the total auto premium and I also like to recommend consideration when I am reviewing a policy. (For example, Sally has had a diminishing deductible program for 3 years without an accident during that time. Her program allows her deductible to decrease by 100$ per year of safe driving. If her deductibles are set at 500$ for both types of accidents, she will now get to enjoy a 200$ deductible while also paying a premium that reflects her original, higher deductible)
  4. Project the Next 5 Years – Connect with your agent in order to find the difference in premium for each increasing deductible. Compare these premium savings to the increased amount of out-of-pocket money you would have to pay for each accident. If we make a grid with the savings from the next 5 years in correspondence to the number of accidents an insured may have in that time, we get something like this:

This table allows a visualization of how the increased deductibles may save or lose money based on the number of accidents (thus, the importance of step 1 in our process).

I always show clients a customized table with their specific premium amounts so that they can make an educated decision for themselves about what deductibles they are comfortable with. Reach out to your insurance agent today about going through a review of deductibles, or give us a call at Marshall Insurance Brokers to get a deductible review. Insurance is not a one-size-fits-all service, get the custom-fit, tailored service you deserve.

JT Marshall, Personal Lines Specialist
Marshall Insurance Brokers, LLC

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