Finding the Right Balance between Auto insurance Limits and Deductibles
The goal of insurance is to take some of the risk you are exposed to every day off your shoulders. You pay the insurance company and, in turn, they accept the risk that you might have an accident and agree to pay a certain amount.
But auto insurance often offers a sort of shared risk. Deductibles and limits ensure that some of the risk is yours, and some of the risk is the insurance company’s. Deductibles are the amount of damage that you are responsible for before the insurance company steps in—so if the cost of your damage does not exceed your deductible, the responsibility is all yours. Limits are the maximum amounts that an insurance company will pay for a claim; any liability above that amount must be covered by you unless you have an umbrella policy.
The higher your deductibles are and the lower your limits, the less risk your insurance company has and the cheaper your premiums will be. But an inexpensive premium doesn’t absolve you from responsibility, since you still have an aggressive deductible and low limit to make up for.
Ultimately, when using deductibles and limits to create an affordable auto insurance policy, you want to make sure you find the right balance.
- Can you afford the deductible? You should be able to pay your deductible without going into debt or taking the money from a qualified account with penalties for early withdrawal.
- Do you have resources for claims that exceed limits? If you have a claim that exceeds the limits of your policy, you want to try and pay that claim with funds that you have readily available, but even if you can’t you should make sure that you have the resources to pay the excess of limits somehow.
- Is it worth the risk? Finally, make sure you do several comparisons with lower deductibles and higher limits to make sure that your premium savings is really worth the increased exposure you have. Consider the changes in premium that these adjustments bring and then consider where you’ll need to pull the money from to pay your deductible or claim that exceeds your limits and weigh the pros and cons of each.
Shopping for NH auto insurance is not about finding the lowest premium. With a little finesse, you and your agent can design a plan with an affordable premium that offers you the coverage you need.