Car Repair

Reducing your car insurance coverage to save money isn’t a great idea even when times are tight. It puts a few more dollars in your pockets each month but could leave you unable to pay repair bills after an accident.

Manuel Escobar, the owner of Channel City Auto Body in Santa Barbara, Calif., says that drivers without collision and comprehensive coverage are astounded to find out how much they must 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,” Escobar says. “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.

What does it mean to have a higher deductible?

Considering that collision and comprehensive insurance are optional, budget-conscious consumers weigh their value against other household expenses, says Bob U’ Ren, senior vice president of Quality Planning, a San Francisco-based insurance research firm.

“Insurance is usually a pretty big chunk, and it’s one of the things that gets trimmed a bit,” he says.

If consumers opt for higher deductibles, policyholders will pay lower premiums but more out of pocket if they are involved in an accident. And some drivers simply pocket 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 — but the insurer will only pay for a claim once.

“The insured can decide how they want to spend the money,” U’ Ren says. “They can put it into a bank account or go shopping with it.”

Where your premium dollar goes

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% 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 incidents except for car collisions.

What happens 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 cannot afford the repairs and the vehicle can no longer be driven, he will 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.

Make sure you have savings if you want to hike your deductible

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.

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.

— Louise Witt contributed to this story.

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Executive Editor

Laura is an award-winning editor with experience in content and communications covering auto insurance and personal finance. She has written for several media outlets, including the USA Today Network. She most recently worked in the public sector for the Nevada Department of Transportation.