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Better to Pay Now than Pay Later

ci-4These days practically everyone is looking for ways to save money.  Two common suggestions for saving money on car insurance are:

1.)  Increase the deductible on the insurance you need or are required to have.

2.)  Drop comprehensive and collision on older vehicles.

While these suggestions will lower your immediate cost for insurance, think seriously about the consequence of your decision. It might be better to pay now than pay later.

Imagine answering your cell phone and it’s your spouse, calling to tell you he or she just totaled the car.  What’s your immediate, gut reaction?  That feeling you just imagined is a clue to your tolerance for risk. In “insurance speak” choosing a deductible or cancelling coverage that’s not required is known as deciding how much risk to retain.

This means you are agreeing to cover the risk of paying out of pocket in case of an accident.  For example, if your auto insurance deductible is $500, then you will have to reach in to your own pocket (or bank account, or credit card) to pay the first $500 when a loss occurs.

80% of All Drivers Overpay for Insurance. Do You? Start Saving Now. The decision about how much risk to retain depends on several factors.  First, consider how painful it would be to pay that amount.  Don’t just consider the financial, think about how you would feel about it as well.

Consider how you will pay for the uncovered portion of the damages.  Will you use a credit card?  If so, will you be able to pay it off when the next bill comes?  If you are going to carry the balance for a few months, any “savings” you get from a lower deductible will be quickly devoured by interest payments.

Or do you have savings for just such occurrences?

If you have leased the car, or if you have a loan against it, the bank or leasing company will have a say in determining the deductible.  You may have a lower deductible than they require, but not a higher one.

To put the now versus later conversation in perspective, divide the amount you would have to pay out of pocket by the savings you would realize.  Also, consider if you would actually save the extra money to cover the potential loss. In many cases, it’s better to pay now than to be faced with a large bill when you are under stress.