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What if I can't pay my deductible?

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CarInsurance.com

Car Repair

Owners of repair shops say they're seeing more customers unable to pay.

Since the Great Recession began, drivers have been cutting back on their car insurance coverage to save money. That's put a few more dollars in their pockets each month but left many unable to handle their repair bills.

Manuel Escobar, owner of Channel City Auto Body in Santa Barbara, Calif., says many drivers without collision and comprehensive coverage are astounded to find out how much they must to pay to fix their vehicles.

"The average consumer doesn't have a clue of the expense to repair collision damage until you put the estimate in front of them," says Escobar, who has been in business for more than 30 years. "A lot of them have sticker shock."

Their choices are few: They can ask the shop to cut some corners. They can borrow money from elsewhere. Or they can leave the car with the shop and hope it isn't sold before they can come up with the cash.

When insurance is a luxury

A recent study by Quality Planning, a San Francisco-based insurance research firm, found that the number of consumers who chose not to buy collision and comprehensive insurance rose each year from 2006 through 2010. During that same time period, owners of vehicles were 10 years old or older were more likely to drop collision and comprehensive coverage.

Bob U' Ren, Quality Planning's senior vice president, says the study's findings were not unexpected.

Considering that collision and comprehensive insurance are optional, he says, budget-conscious consumers weigh their value against other household expenses. "Insurance is usually a pretty big chunk, and it's one of the things that gets trimmed a bit," he says.

Those who did buy collision and comprehensive coverage chose higher deductibles to lower their premiums. From 2006 to 2009, the percentage of vehicles with deductibles up to $250 fell at an annual rate of 9 percent. At the same time, deductibles between $251 and $500 increased an average of 1.6 percent a year and those between $501 and $1,000 increased an average 4.9 percent a year. With higher deductibles, policyholders will pay lower premiums, but they will pay more out of their own pockets if they are involved in an accident.

And some drivers are simply pocketing their claims checks.

U' Ren says that this practice has been going on for years. The insurer is legally obligated to provide a certain amount to the policyholder for repairs. "The insured can decide how they want to spend the money," U' Ren says. "They can put into a bank account or go shopping with it."

Where your premium dollar goes

According to the National Association Insurance Commissioners' latest figures, the average auto insurance premium was about $900 in 2008.

Most states require drivers to purchase a minimum amount of property and bodily injury liability insurance to protect passengers, the other driver and the other driver's vehicle in the event of an accident. Collision and comprehensive policies, on the other hand, are optional: Collision coverage pays for damage to the policyholder's vehicle if it is damaged in an accident, even if he is responsible, and comprehensive insurance covers theft, cracked windshields and all other damage to the vehicle, including damage caused by fire, fallen trees, vandalism, hail, windstorms, floods and more.

In a typical auto insurance policy, a little more than 50 percent of the cost is for liability coverage, says Mike Barry, a spokesman with the Insurance Information Institute. About 33 percent is for collision and 15 percent for comprehensive coverage --relatively inexpensive, Barry says, considering that it covers theft and damage from most any other incident except a collision with another vehicle.

If you can't pay your deductible

Repair shops owed money for repairs can retain possession legally, using what's known as a mechanic's lien, though that's hardly their first choice.

If the customer has to pay all the repairs or even a sizeable portion of the bill, he typically will ask about lower cost options. In those instances, Escobar will tell his customers that they may opt to repair the most damaged parts, forgo blending paint to get a perfect match, or substitute used or after-market parts for new manufacturer parts.

"They are put in a position of paying huge out-of-pocket expenses or scaling back what they have to do," Escobar says. In some cases, if the customer is unable to afford to the repairs and the vehicle can no longer be driven, he will offer to sell it to a junkyard or even to Escobar. "On occasion, I buy it back and resell it," he says.

With less insurance coverage, U' Ren says he's not surprised to hear more drivers negotiate lower prices with auto body shops and skip optional or expensive repairs. "With less money in household budgets, the last thing you want to do is throw money at your car," he says.

Even so, U' Ren says he thinks consumers will decide to cut back on their collision and comprehensive coverage. "As long as we have an economic recession and people are going through tough times, I think this trend will continue."

Drop coverage or keep it?

Higher deductibles are tempting, especially for drivers with little cash to spare. A savings of, say, $20 per month may seem worth the gamble. But if you raise your deductible, having adequate cash in savings, or on a credit line, becomes critical. Otherwise your car is at risk. (You can compare auto insurance quotes using different deductible amounts at most online insurance sites.)

Before changing deductibles, try comparison shopping for car insurance policies. Insurers calculate your rates independently; the same coverage can vary in cost by hundreds of dollars. (See "Pocket $1,102 just by shopping around.") Younger drivers pay by far the most for insurance, and they stand to save the most.

The temptation to drop everything but liability coverage is strong if your car is a paid for. Ask yourself:

    • If you had to replace your car tomorrow, could you? Consult the Kelley Blue Book, Edmunds or Craigslist to get an idea of what you might have to spend. Then subtract your deductible. That's what you're on the hook for if you decide to go with a liability-only policy. Some experts recommend that you divide that exposure number by 10; if the collision and comprehensive premiums spelled out on your last bill total more than that, you might consider a liability-only policy.

    • How solid are your finances? An extra $20 a month is cheap insurance if you're skating on the edge of financial ruin. A wrecked car means no way to get to school or work.

    • How risk-averse are you? If you've got cash in the bank but hate the idea of exposing your savings, consider raising your deductible as high as you can.

    • Do you rent cars frequently? Your current full coverage may extend to the vehicles you rent. Check your policy. Collision damage rental car waivers at $7.95 a day add up quickly.
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