Since premiums and deductibles both mean money leaving your bank account, it’s important to understand how each one works.
Premiums are the amount you must pay for the coverage you’re purchasing. Premiums are often collected monthly, but some companies and products allow for annual or biannual premium payments as well.
Auto insurance premiums are impacted by several factors, including:
Higher coverage amounts usually cost more, resulting in higher premiums.
Higher deductibles tend to mean lower premiums and lower deductibles tend to mean higher premiums.
Expensive and high-performance vehicles tend to be more costly to insure. The vehicle’s repair costs, safety record, and likelihood of theft may also affect premiums.
Drivers in metropolitan areas generally pay more than drivers in rural areas. It’s important for Service members to recognize that location impacts costs so they can be prepared for potential budget impacts given the frequent PCS moves that are part of military life.
Male drivers tend to pay more than female drivers.
Younger drivers tend to pay more than older drivers.
Single drivers tend to pay more than married drivers.
Those with better driving records (few tickets and accidents) tend to pay less.
Those with better credit reputations tend to pay less.
A deductible is the amount you’re required to pay as part of a claim. For example, if an accident causes $3,000 worth of damage to your car and your deductible is $500, your insurance will pay $2,500 toward the repairs and you’ll pay $500.
You get to pick the amount of your deductibles from the levels offered by your insurer. Choosing a higher deductible generally lowers the cost of your insurance while choosing a lower deductible generally increases it.
Tip from Scott Halliwell, CFP®
If you decide to go with a higher deductible, make sure you have the money available to pay that deductible if you ever need to file a claim.