Reader Question:
Hey Austin, I read one of your posts the other day where you suggested to someone that they carry a high deductible on their auto insurance, like $1,000. Isn’t the point of auto insurance to pay the majority of the claim for you…so why would I voluntarily pay more of the claim?
Jacob, Houston , TX
Hey there Jacob,
Yes, I did and still do recommend people carry a high deductible rate like that. I do on my personal vehicles and the savings on my annual premium is substantial. I look at it this way.
I have not been in an accident or had a claim in over 10 years and I am a pretty safe driver. I have 2 fairly new vehicles worth more than $25,000 each and would not claim anything on my auto insurance policy that was LESS than $1,000 for fear of a rate increase or being dropped.
The deductible is the amount YOU have to pay, but you only pay the deductible when the claim is paid by YOUR insurance company. So, if you are a safe driver with a clean record you first have to have an accident or a claim, AND that claim has to be paid by your carrier. So two things really have to happen before you pay out your $1,000.
The average repair bill for an auto accident is about $5,500!! I save about $300 a year on my total premium because I set my deductible at $1,000….so over the last 10 claim free years I probably saved $3,000!!!
My advice is to take that $3,000 savings and buy into a good mutual fund earning 8% return over the past 10 years. That $3,000 could have doubled within those 10 years. If you get into an emergency…use the money.
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Blessings
Austin Davis