Do you know offhand what your deductible is on your car insurance??

Any idea how much that deductible is costing you??

A lower deductible comes with some perks (aside from the obvious one being that in the event of a claim, you don’t have to fork over as much $), but make no mistake about it, you pay for those perks through higher premiums.

Before I go through our numbers as an example, let me just clarify that a premium is the cost of the insurance policy, usually calculated annually but paid monthly.  You must pay this whether or not you ever make an insurance claim.  The deductible is what you have to pay when you make a claim (ie if you get into a collision and make an insurance claim, you will only have to pay the deductible and not the full amount of the repairs – the insurance company pays for the rest).  Let me also state the obvious… insurance is different from province to province (even those with public insurance) and from company to company (in those provinces without public insurance).  Ask questions.  Know your policy.  Make sure it’s right for your needs.

Ok, so in our household (in Manitoba, which does have public insurance), we have a truck, a van, and a quad, and for too many years, all 3 had low deductible ($200) insurance policies.  Some of the perks of those policies were that the deductible would be waived in the event of:

  • a theft / attempted theft of the vehicle
  • glass repair
  • wildlife collision
  • vandalism.

To get the low deductible, including the above added perks, we paid an extra (on top of the ‘basic’ insurance amount) $130 annually for G’s truck, $192 annually for my van, and $60 annually for the quad.  Neither G or I actually remember asking for a low deductible.  Presumably, when we initially got the policies, the insurance agent asked us what deductible we wanted, and upon noticing our clueless expressions, ‘helpfully’ suggested a low deductible and we went along with it.  And we never gave it any thought as our policies automatically renewed year after year after year after year

But here’s the thing… we’ve been driving a combined total of FIFTY years (frick, that makes us sound ancient) and we’ve maybe made a total of 5 claims COMBINED… and we’ve NEVER benefited from a waived deductible for theft, vandalism, wildlife or glass repair.

Do the math.  Seriously, do it. Because I can’t bear to. I don’t want to know how much cash we wasted on low deductible policies.  Suffice it to say that those low deductibles have cost us BIG TIME.

About 2 years ago, we switched to just basic insurance – which comes with a $500 deductible – on all of our vehicles, saving us about $32 a month ($130 + $192 + $60 / 12).  At that rate, we saved $300 (the difference between a $200 & $500 deductible) in just 9.5 months, so we’ve already come out ahead financially, and as long as we don’t make vehicle insurance claims every year (which seems highly unlikely given our past histories), we’ll keep piling up the savings!! Or to put it another way, we saved $500 (the difference between a $0 & $500 deductible in the case of a wildlife collision, for example) in just 16 months, so we’re even ahead financially if you take into account the added perks of low-deductible policies.  So again, as long as we aren’t making wildlife collision or theft claims every year and a half (which seems even less likely), we’re really coming out ahead!

Before you go increasing your deductible though, keep in mind that in the event of an accident, you’ll need to come up with a larger amount of cash all at once.  And, of course, the last thing you want to do is incur debt to pay that deductible, so if you think you might have a hard time coming up with $500 unexpectedly, make sure you funnel some of those initial monthly savings into an emergency account to cover this situation.

And another thing… while you check on your deductible, don’t forget to look at the rest of your car insurance policies to make sure they’re appropriate for your needs.  In taking a closer look at ours, we noticed that both the van and truck had commuter (‘all-purpose’) insurance when in fact, the truck was no longer being used for commuter purposes.  Changing that insurance from ‘all-purpose’ to ‘pleasure’ saved us an additional $20/month.  Combined with the savings from our change in deductible, we’ve been saving $52 a month on our car insurance! This might not seem significant, but this isn’t just a one-time saving.  It’s pretty indefinite (the only thing that might change at some point is having all-purpose insurance back on the truck if G starts using it for commuting purposes again)… which means that in the past 2 years, we’ve already put an extra $1,250 in our pockets! In another 3 years (5 years total), we’ll have saved $3,120! In 8 years (10 total), it’ll be $6,240!!  If someone invested $52 a month from the start and averaged 7% interest compounded annually, they’d be sitting on $9K after 10 years!

Not so insignificant anymore, is it?  Especially since the higher deductible / lower premium has zero negative effect on your quality of life (our favourite kind of saving!)!