Save money on your car insurance

One quick and easy way to save some money on your car insurance is to raise your deductible.  But don’t just go out and change anything before crunching some numbers first.

First we should define what a deductibe is.  A deductible is term that refers to how much money you are on the hook for if you make a claim (get into an accident). So for argument’s sake, let’s say your deductible is $500.  If you get into an accident and the damage is $4,000 then you pay the first $500 and the insurance company pays the rest.

(A side note: think twice about making a claim for a $600 accident if you deductible is $500.  Is the chance your premiums increase for years worth saving the extra $100 at claim time?)

If you raise your deductible to $1,000 you may save perhaps $100 per year.  In this case you have to weigh the fact that this strategy works so long as you don’t get into an accident more than once every 5 years and 1 day. Let me explain: If you have a $500 deductible and get into an accident you will pay the $500 deductible.  If you raise your deductible to $1000 and you are now saving $100/year, after 5 years you will have saved $500 – now you can cover the cost of the raised deductible. Within the first 5 years if you have an accident you will be on the hook for $1000 and will have “lost” using this strategy. If you go 5+ years without a claim – that’s money in your pocket! :)

Make sure you get a quote on how much you would save first before going out and changing anything – and if in doubt, consult your financial advisor.

Preet Banerjee
Preet Banerjee an independent consultant to the financial services industry and a personal finance commentator. You can learn more about Preet at his personal website and you can click here to follow him on Twitter.
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