The most common advice I hear about how to lower your car insurance premiums is either to drop collision on your car, or raise your collision and comprehensive coverages as high as possible. But first, I think you have to put things in perspective first.
What is collision coverage? Will it go up if I make a claim?
Collision insurance will cover costs related to repairing damages to your car due to an accident with another car (including hit-and-run). Usually this type of coverage is only required when you lease or have a loan on your car. In most cases, if you do get in an accident and make a collision claim, your rates will go up. Some companies will forgive the first accident if you have a certain length of accident-free history. For me I think it’s 10 years.
What is comprehensive coverage? Will it go up if I make a claim?
Comprehensive covers everything else not a collision (makes sense that it’s called “comprehensive”, eh?). That usually means fire and theft, but can also include natural disasters, riots, explosions or falling objects. This is also required for a lease or a loan. I’ve actually made a claim after a riot, what a pain. According to my State Farm agent and what I’ve read online, your rates will not go up due to a comprehensive claim. Presumably this is because these events are not your fault. However, I have heard that companies can still decide to drop you completely if you make too many overall claims.
So, what should I set my deductibles to be?
First, we need some important information. Would you be greatly affected if you had a sudden $100 repair bill? How about $500? $1000? If losing $500 would cause you to be late on other bills, rack up more credit card debt, etc., you may want to set a lower deductible and suck up the slightly higher premium. Set it as high as you are comfortable with, especially for collision.
Also, you’ll need the Kelley Blue Book or Edmunds Private Party Value of your car, as if your car is totalled, you’ll only get the “replacement value” of the car. If you annual collision+comp premium is more than 10% of the value of your car, you may be better off dropping coverages completely.
’95 Nissan – KBB: $5700, Edmunds: $5500
’02 GM Car – KBB: $8300, Edmunds: $8000
I could take a $1,000 hit and survive. My current premiums for collision/comprehensive are $260 per year for the Nissan alone, so I’m not even near 10%. (Haven’t gotten quotes for GM yet.) I’ll probably consider dropping collision and comprehensive in a couple years.
So I’m tempted to change my deductibles to $1,000 for both collision and comprehensive. I really want to avoid making a collision claim since I feel the money you save with a lower deductible will just be paid back by future high premiums. But if I recall last time I played with deductibles, lowering my comprehensive deductible from $1,000 to $100 only raised my premium about $50 per year. And since making a comp claim won’t raise your rates, it might be worth it to keep the comp deductible low. Hmm… definitely $1,000 collision deductible, I’ll have to compare the actual rate quotes for comprehensive.
Wow another long post. I’ll save tow coverage, rental car coverage, and other extras for another post then.
By Jonathan Ping | Insurance | 5/24/05, 10:06pm