Bruce Sackrison

Bruce Sackrison is a Napa Valley Register columnist who will write about property and casualty insurance matters.

This week, I’ll talk about the pros and cons of raising the deductibles on your auto insurance, and then I’ll give you my advice.

First, I’ll explain what a deductible is and how it works.

A deductible is the amount an insurance company “deducts” from a check that they pay you for a loss.

For example, if the insurance company determines that the damage to your vehicle costs $3,000 to repair, and you have a $500 deductible, they will send you (or the auto repair shop) a check for $2,500. You are responsible for the deductible amount.

You do not pay the deductible to the insurance company. It’s simply a subtracted amount from what they pay you.

Remember, you can have a different deductible for comprehensive and collision. Comprehensive covers theft, vandalism and other perils not related to collision. Collision covers you for damage to your vehicle if it is your fault.

Three reasons to increase your deductibles:

1. You’ll save money.

Studies show that raising your deductible in California is a better savings than in many other states.

Savings vary dramatically, based upon the insurance company, year, make and model of the vehicle, and other factors. But there’s no doubt — you’ll usually save a lot by raising your deductibles.

2. You’re are a good driver.

If you haven’t had an accident in many years, this is a good reason to consider raising your deductibles. It’s like giving yourself an added discount.

3. Your vehicle is getting older.

There comes a point where the premium for “full coverage” or low deductibles isn’t justified.

An easy formula to remember is that when the premium to have full coverage, plus your deductible, adds up to the value of the car, it’s time to consider dropping full coverage. Insurance companies will never pay more on a claim than the value of the car.

One really good reason to not increase your car insurance deductibles:

If paying out a large deductible would be painful, don’t raise your deductible.

If you are like many in these tight financial times, you may not have a $1,000 deductible in quickly available cash.

The premium savings sounds great to everyone — until there’s a claim. Then the sobering reality of paying a large amount out-of-pocket hits hard.

My advice:

First, never have a deductible higher than you can easily pay out-of-pocket.

Second, if you decide to raise your deductible, put the amount that you save into a short-term savings account, so it’s ready to use in case you have a claim.

Once you’ve set aside enough of the premium savings into a separate account, you are essentially “self-insured” for your higher deductible. Everything after that is yours to use elsewhere.

Finally, call your local insurance agent to get comparison rates for different deductibles. Work with your agent to figure out your best strategy. There’s no “one size fits all” solution.

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Bruce Sackrison is an insurance property and casualty broker affiliated with Professional Insurance Associates. He can be reached at 707-931-0186 or bruces@sackifs.com.