More Coverage, More Risk, Less Cost

by Kevin on September 4, 2008

This past weekend I finally got something done I had been meaning to change for quite some time: we made some changes to our car insurance.

The main purpose of looking at our insurance was looking to lower our insurance premiums. I like who we have for insurance, and I realize you can always shop around… but I wanted to stick with who we have for now.

The Options

My options essentially fell to switching companies, or increasing our deductible, or lowering our coverage in some way. Since we have pretty basic coverage, I figured that wasn’t an option. And since I didn’t want to switch companies our only option was to increase our deductibles.

The Risk

Increasing your deductible needs to be a calculated risk. If you raise the deductible and have an accident, you need to have the extra money on hand to handle it. Let me re-emphasize this: unless you have a solid emergency fund, I wouldn’t recommend jacking your deductible up really high. Isn’t it Murphy’s Law or something like that? You increase the deductible to something you can’t afford, and the next week you have an accident.

Our emergency fund is solid and we can afford the higher deductible.

The Coverage

Our previous policy had (two cars):

  • Bodily Injury: 50,000/100,000
  • Property Damage: 50,000
  • Medical: 2,000
  • Uninsured/underinsured: 50,000/100,000
  • Comprehensive Deductible: $250
  • Collision Deductibles: $500

Pretty basic coverage. More than was required by the state of Alabama, but still a lot less than you can get.

We increased our coverage to this:

  • Bodily Injury: 100,000/300,000
  • Property Damage: 100,000
  • Medical: 2,000
  • Uninsured/underinsured: 50,000/100,000
  • Comprehensive Deductible: $250
  • Collision Deductibles: $1,000

More Coverage, More Risk, Less Cost

We have more coverage (which costs more), but thanks to the deductible increase the increase in coverage cost was more than offset by the deductible going up. Our policy now costs us $65 less per year. Not a big difference, but a difference nonetheless. And we’ve got less possible liability.

Hopefully we can avoid Murphy’s Law…

Have any of you out there done something similar? Decreased your coverage or increased your deductible to lower your cost? How did it work out?

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LivingAlmostLarge September 4, 2008 at 9:34 am

We only have liability on our cars. Not a huge deal they are worth about $4k/year. If they were smashed we’d not replace either one and could probably make do with one car. If they were hit by someone else we’d keep the cash.

Kevin September 4, 2008 at 9:36 am

@LAL: The only issue there is if you get hit by someone without insurance. Then you’re up a creek without a paddle. But there is a point where the value of the car doesn’t justify having the rest of the coverage.

Ricky September 4, 2008 at 11:28 am

My wife and I recently increased our collision deductible, and for the same reason. We left our comprehensive deductible low because it covers things you have no control over. When we bought our house we changed insurance companies in order to have our auto and home owners insurance through the same company. We recieved a pretty signifcant discount for having both things covered with the same company. Our insurance company also offered something that I had never heard of before or since for that matter. I had always carried the required state minimum coverage on the liability portion of my insurance, but our insurance company told us that if we doubled our liability coverage we would receive an additional discount on our home owner’s coverage. The discount outweighed the additional cost for the increased auto coverage, so it was a no brainer. I still have no idea what is in that for the insurance company, but I’ll take it!

Shaun Carter September 4, 2008 at 12:45 pm

I drive a car worth less than $2,500, and paying for collision coverage just doesn’t make sense because I am a young adult – albeit with no tickets whatsoever and rates are high for my age group. I pay $600 per year for PLPD, and would pay over $2,000 per year if I added collision.

MoneyGrubbingLawyer September 4, 2008 at 1:41 pm

Kevin, we’ve recently done some re-jigging of our car insurance as well. One of our cars is probably only worth about $3,000 and we had planned to eliminate collision on that one, but it would have saved us less than $100 for the year, so we decided the small cost was worth the coverage.

Upping your deductible is a great way to bring your premiums down, as long as you’re willing to take that risk (I am). The only thing I wouldn’t scrimp on would be the amount of third party bodily injury coverage, as that’s what I’m really concerned about. We’ve got $1m coverage, and I wouldn’t want to go any less- even a relatively minor accident can result in claims well in excess of $100k.

LivingAlmostLarge September 4, 2008 at 5:12 pm

Yeah it’s call it’s not worth driving. Our insurance for liability is about $1200/year now that MA has opened up to competitive insurance. For the past 3 years we’ve been paying state regulated insurance for $2400/year.

So adding on collision on our cars would current add on $600/year but previously have gone about $4k or the cost of one car.

Now it might make sense but the value of the cars are still decreasing. So I don’t think it’s worth it. Maybe the next cars we drive.

We’re still on our first cars ever. How many people can say that? We did not inherit a car either from our parents ever.

Kevin September 4, 2008 at 9:56 pm

@Ricky: That is odd. Not sure why they would offer that, but what the heck!

@Shaun: Makes sense in your situation.

@MoneyGrubbingLawyer: That’s a lot of coverage. Wow. Would an umbrella policy be better?

@LAL: Wow. That’s ridiculous for insurance…

Shaun Carter September 4, 2008 at 10:24 pm

@Kevin – In re to MoneyGrubbingLawyer, that is a lot of coverage but that is what an auto insurance sales friend of mine has on her own vehicles and encourages me to do the same. However, she forgets I don’t get the huge discount on coverage that she does. I think an umbrella policy would get a better bang for the buck in the million dollar plus coverage range.

MoneyGrubbingLawyer September 5, 2008 at 5:26 am

@Kevin / Shaun – I looked in to umbrella coverage, but found the cost to be significantly more than just upping my auto coverage. The extra cost for increasing from $200k (our minimum required) to $1M was only about $105 a year for two cars, while a separate umbrella policy would have cost close to $500.

Andy September 13, 2008 at 3:11 pm

Some great tips and will include reference in my weekly wrap.

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