What Your Deductible Means to Your Budget

One of the great aspects of auto insurance is the insured's ability to reduce his or her premiums by determining what he or she can afford to pay for out-of-pocket after an accident. This amount, called a deductible, reduces the auto insurance company’s exposure to risk and possible claims payout and can affect the insured's premium.

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For instance, let's say you have a savings account with over $5,000 in cash (it’s important that you have cash because you don’t want any kind of charges associated with liquidating your funds when you access them to pay a deductible). If you have a car accident, you can easily afford to pay a $500 deductible out-of-pocket. You can even afford to pay a $1,000 deductible. While you may automatically choose the policy with the smallest deductible, It may actually be smarter to choose the higher deductible because it will save you money on premiums. You can then take the money you save and put it in your savings account so that it helps defray some of the deductible expenses.

If you aren't sure what kind of deductible would best work within your budget, talk to your auto insurance specialist. They can help you decide which deductible will cause the least strain on your finances and save you the most on your auto insurance premium.