According to Savingadvice.com, unless you have talked about the magical vanishing deductible auto policy with your independent insurance agent you most likely do not know that in exchange for the vanishing deductible you are paying about $5 per month extra for your policy. That is $60 per year against a reduction in your deductible of $50 to $100 per year for each year that you do not have an accident or a moving violation. Should you have an accident, two things will happen:
- If your original deductible was $500 and you have gone two years without a claim or ticket your deductible for the incident will only be $400.
- If you do incur a claim or ticket, your deductible will be set back to $500 and you have to start earning the lower deductible all over again.
Originally offered only by two insurance companies, Allstate Auto Insurance and Nationwide it is becoming a popular option with other insurance companies according to Investopedia.com. This means you should have your agent comparison shop for you if this type of policy is of interest.
Policies with vanishing deductibles are more expensive than auto policies with fixed deductibles. A traffic ticket or accident (no matter who is at fault) resets your deductible to the original amount.
Most policies cap a vanishing deductible at $500, if you elect a $1,000 deductible it will never go below $500.
Is A Vanishing Deductible Worth It?
The added cost of a vanishing deductible is at least an additional $60 per policy year. While it seems like a small amount that may save you as much as $100 on your deductible if you have claim, it is actually quite a bit of money if you never file a claim. But, that money goes right to the insurance company's bottom line.
Remember, you only pay the deductible if you file a claim for an incident that was your fault. So, consumers need to look at this proposition from a cost benefit analysis. Frankly, the odds of not having a traffic infraction or accident over five years are not with you, thus the extra premium you are paying for this new type policy really is a benefit to the insurance company.
An alternative to the vanishing deductible is for you to put $5 a month into a savings account. At the end of five years you will have $300 saved earmarked towards your deductible. If you have no claim for another two years you practically have it covered ($420) and it may even be earning interest!
Of course, depending on your insurance company, discounts and other insurance considerations, the advice of your independent insurance agent is going to be very helpful in deciding if this coverage is right for you.
Darmini Kara writes insurance articles for and about Stafford VA car insurance, Webster NY Auto insurance, Waco auto insurance, California auto insurance.